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.
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