Investment Themes Edelweiss Is Bullish On Ahead Of 2019 Elections

The Indian economy, ahead of 2019 general elections, has come a ‘half circle' according to an Edelweiss report. That's because while the macro indicators have turned risky from robust, the micros seem to be looking up.

Even as macro challenges such as the rally in crude oil prices, depreciation of the rupee and fiscal constraints are obstructing growth, Edelweiss sees buying opportunities in select stocks and sectors. “We perceive distinct sectoral turnarounds and, post a seven-year earnings slumber, envisage earnings and corporate revival more than the bears could buy,” the Edelweiss report noted.

Here are the themes that the brokerage recommends:

Rural Sector

The terms of trade in the rural sector are turning around, according to the brokerage. The factors at play can be stabilisation in global agricultural prices, the government's promise of a 13-14 percent increase in the minimum support price from the cost of production and the prediction of a normal monsoon.

As the general elections draw near, the rural economy is poised to benefit. Since the rural population accounts for a large voter base, governments tend to focus on favourable policies for that segment, Edelweiss said.

Information Technology

Indian IT majors have enough headroom to sustain high growth rates, according to Edelweiss' IT analyst. The brokerage expects growth to be led by the “U.S. landscape [which] is the best in a decade” with spends and pricing on an upswing. The shift to digitisation is also adding to the broader IT services landscape, Edelweiss added.

Better capital management resulting in better return ratios coupled with depreciation of currency are potential upsides in the sector, the brokerage noted.

Banking And Finance

Amid asset quality woes and restructuring challenges, the brokerage house sees opportunities for growth in the Indian banking system with resolution of large stressed assets underway and a pick-up in wholesale credit lending.

“We believe that the best part of the retail credit cycle and the worst part of the wholesale credit cycle are probably over,” Edelweiss notes, adding that there remain business-specific considerations in the space. Going ahead, the brokerage sees retail banks capturing wholesale opportunities and remaining leaders in the near term.

The pace of stressed assets resolution, banks' appetite to participate in growth, management changes in banks and financialisation of savings in the economy serve as opportunities for investors to place their bets.

Industrials

Early signs of capital expenditure recovery are visible in order books of smaller private companies. That is a good sign, given that government sector has remained a primary growth driver over the years, Edelweiss said.

However, even as the theme remains contentious, the brokerage sees green shoots with market leaders maintaining market share, and smaller players expanding footprint. A downside is that the sector is sensitive to election expectations, given the top-down nature of capital expenditure.