Most brokerages are betting that the new government will shift to a policy focussing on boosting rural incomes and consumption since that has clearly been a pain point.
This could coincide with a cyclical upturn in GDP growth, given the latest estimates.
The next Budget will provide a clearer picture but this is a rational rebalancing of portfolios if we assume policy will be driven by domestic political considerations.
In that case, we are likely to see a shift of investment into three or four sectors that tend to traditionally benefit from rural welfare.
One is FMCG, second is two-wheelers and the third, tractors.
Agrochemical consumption could also see an uptick, especially in the context of normal or better monsoon expectations for 2024.
A greater focus on welfare schemes like Ujjwala, Jal Jeevan, Swachh Bharat Abhiyan among others, could also be a booster for rural well-being and optimism.
While the last two or three years have been low-growth for FMCG, which has also suffered margin compression due to inflation, the FMCG majors have focussed on improving distribution footprints and quick commerce access.
Raw material costs are moderating for most FMCGs and their efforts to improve distribution could also start paying off with a lag.
Seasonal portfolios like Dabur, Emami, and Godrej Consumer are likely to see a bigger boost from good monsoons.
The FY25 full-term Budget may be consumption oriented.
While FMCGs traditionally receive high stock market valuations due to the better predictability of profits, many blue-chips are currently trading at some discount to their historical PE ranges.
There could be a spate of analyst upgrades of valuation targets for stocks like Dabur, HUL, Nestle, Colgate, etc.
However, despite its FMCG and rural agro-focus, ITC could be under pressure since cigarettes is the go-to sector when governments wish to hike tax revenues.
Agrochemicals, two wheelers and tractors are all direct plays on rural/ semi-urban well-being.
A good monsoon will push agrochem usage. More money in rural pockets will lead to better sales volumes for two wheelers though this is usually boosted by festive season and wedding season discounts.
Tractors are also likely beneficiaries and Maruti could pick up volumes in the entry-level four wheeler segment.
Real estate gains depend on the type of products that the sector offers.
While there was a K-shaped recovery this could change if there s a rural focus with affordable housing schemes witnessing a boost.
Allied segments like building materials would benefit but cement may be in over-supply and many cement majors are highly valued.
Power consumption will continue to grow but policy could go soft on cost recovery, leading to issues with low tariffs, free units, and high receivables for generators.
White goods companies making ACs, and smartphones could also be areas to look at.
The telecom services sector may see a bounce in average revenue per user, as Vodafone receives a new lease of life, the three private telcos institute tariff hikes and better mobile broadband networks are rolled out across rural India.
Another knee jerk policy reaction along with low power tariffs, could be cutting the retail price of petrol, diesel, CNG and gas cylinders, etc.
Since the petro-sector is largely dominated by PSUs, price-control through APM or other means is relatively easy.
This could impact bottom lines for these listed companies, which is why investors have sold off upstream (ONGC, Oil India), and downstream (GAIL, BPCL, MGL IGL).
A refocus on defensive stocks with relatively lower valuations and a rural exposure is likely to be where the smart money will go.
Extremely highly valued industrials and defence sector stocks could continue to see sell offs.
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