Rural economy flavour of season; check out stocks to bet on

Next to companies with dollar revenues, those that stand to benefit from rural consumption are turning out to be the flavour of the season.

Labour bureau data for September showed rural wages growing 16.4 percent year-on-year, up from 14.2 percent in July and 14.6 percent  in August.

According to Credit Suisse analysts Neelkanth Mishra and Ravi Shankar, rural wage survey by the Labour Bureau is best barometer of the rural economy. They see the uptrend in September wage growth sustaining.

"Real rural wage growth is now back to around 4 percent levels from sub-2 percent in July that it had dipped to. We expect it to stay at 4-5 percent for the next 1-2 years, and continue to drive strong rural consumption growth," write Mishra and Shankar in their report.

While companies are bemoaning the state of the economy as a whole, they are happy with their rural market performance.

"In our recently concluded CIO trip, we heard from almost all companies (Maruti, Hero, Tata Motors, Bharti Airtel, M&M Financial Services, HDFC Bank) that despite the broader weakness, the rural part of their operations had not seen any slowdown," says the Credit Suisse note.

The brokerage rates Maruti as being “best placed among carmakers to withstand the sustained slowdown in middle-income consumption.” Other favourites include, ITC, Emami, Marico and Godrej Consumer Products, which according to Mishra-Shankar, stand to gain the most from low-end consumption.

And while there questions about the sustainability of rural consumption growth, given rising inflation, Credit Suisse feels the pick-up in real wages should alleviate such concerns.

Last week, brokerage house Ambit had a similar bullish report on the rural economy.

The rural demand story is likely to be a theme that is likely to persist beyond 2HFY14 owing to certain critical changes that have transpired in India over the past five years, wrote Ritika Mankar Mukherjee of Ambit in her wrote.

Rising penetration of banks, electrification and sanitation have been catalysts of rural growth, but there are five fundamental triggers that have transformed the rural landscape, according to Mukherjee:

* The road connectivity boom
* The silent telecom revolution
* The dramatic increase in land prices
* The rise and rise of blue-collar wages
* The increase in social spending by states and the Centre 

Bajaj Auto, Ramco Cement, Bharti Airtel, Idea, Dish TV, and Hathway are the stocks that Ambit sees benefiting from growth in rural consumption.