Nomura is bullish on rural players such as Mahindra and Mahindra Financial Services, Hero MotoCorp, Crompton Greaves Consumer Electrical, Dabur India and Mahindra and Mahindra as it believes that the thrust on the rural and agricultural economy is a certainty in the upcoming elections. The Japanese broking firm expects 18-28 per cent upside on these stocks.

“We take a look at the hard numbers and trends in vote share to make an assessment of the number of seats the BJP may win in the 2019 elections. The range is wide – between 181-308 seats for BJP/NDA – and reflects the current uncertainty. However, what is certain is the government’s focus on expediting implementation of schemes targeting the rural and poorer sections of society and addressing agricultural distress,” it said.

Rural asset financiers like M&M Financial Services will gain given the cyclical tailwinds, both in terms of election-led pick-up in activity and two years of good monsoons. Hero MotoCorp has 50 per cent of its two-wheeler volumes coming from low-per-capita-income states and stands to be a key beneficiary of any improvement in rural demand.

Crompton Greaves Consumer Electrical is a major player in fans (43 per cent of its FY17 revenues). While the urban segment is highly saturated, the rural penetration of fans is still low at 65 per cent. Dabur has 45 per cent of its domestic business revenues coming from rural markets, which continue to be deeply under-penetrated as far as staple products are concerned.

M&M is the leader in the tractor segment, where the growth outlook remains strong. The company had 42.7 per cent market share in the segment in FY18, and accounted for 28 per cent of its FY18 revenues.

 

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