Nomura’s Top Five Rural-Focused Stocks To Buy In Run Up To General Elections

Japanese brokerage Nomura believes that investors’ focus will remain on rural and agricultural economy in the run-up to India’s general elections next year. Execution of government schemes in the hinterland will have a positive impact on the rural economy in the near and medium term, it said in a note.

Volume growth by fast-moving consumer goods companies, improving tractor sales, and expanding agriculture and tractor financing loan book of non-banking finance companies are lead indicators for rural growth, it said.

Here are the five stocks that Nomura says can give returns between 18-28 percent over the next one year.

M&M Financial Services

Triggers

• Cyclical tailwinds due to pickup before elections and two years of good monsoon.
• Return on equity ramp up faster than expected on rural economy normalising.
• Strong growth outlook with asset quality normalisation.

Risks: Failure in improvement of credit cost remains the key downside risk.

Hero MotoCorp

Triggers

• Rural revival and new launches will drive volumes.
• Widest reach with 6,500 touch points compared to Honda’s 5,500 and Bajaj’s 3,500.
• Management has guided for volume growth of around double digits.

Risks: Higher competition or weak monsoon.

Crompton Greaves Consumer Electricals

Triggers

• Fans and pumps are key segments exposed to rural markets.
• Two thirds of business has potential of a rural play.
• Continues to focus on mass markets with adding premium products.

Risks: Loss of market share and weakening demand.

Dabur India

Triggers

• 45 percent of domestic revenues come in from the rural markets.
• Rural markets underpenetrated as far as staple products are concerned.
• Significantly increased its focus on gaining market share over the past few years.

Risks: Faster than expected rise in commodity costs and higher advertising and promotional spends.

Mahindra & Mahindra

Triggers

• New launches to drive growth as rural outlook increases.
• Key driver for farm equipment sector is the higher increases in MSP.
• Key agri states form 40 percent of passenger vehicles volumes of the company.

Risks: Slower-than-expected revival of the utility vehicle segment and weaker monsoons affecting tractor demand.