Brokerage firm CLSA believes the Indian rural slowdown is here to stay for some more time despite a pick up in government spending.
In a report the brokerage house has said the rural slowdown is policy-driven and will likely sustain until capex cycle picks up.
The brokerage is bearish on two-wheeler and FMCG companies. It has reduced weightage of Mahindra & Mahindra in its model portfolio by 2 basis points and added 1 percentage point each to Maruti and Tata Motors.
"During 4QFY15, the government expenditure was up 15 percent YoY already.Also the spending surge in the base 1HFY15 implies that the YoY impact might be muted," says the report which further adds that the unseasonal rains and a 65-70 percent probability of El-Nino will impact crops.
The brokerage house has an "underweight" rating on consumer staples and two-wheelers.
Excerpts from the report:
Rural wage growth continues to be anaemic at 5 percent, -ve in real terms # With food being 50% weightage in CPI and Government agreeing with RBI to keep CPI target at 4% implies that these policies are unlikely to change in a hurry.
Unseasonal rains/El Nino further complicate the rural story# Unseasonal rains have damaged crops in nearly 11 million hectares (16 percent) of total rabi crop area) of cropped area primarily in the states of Rajasthan, Uttar Pradesh and Haryana.
Government spending release may not be a big game changer # The general perception currently is that a big surge in Govt spending is on cards from April onwards and it will drive rural demand improvement. While this is true, we believe that the impact will be not as much as expected due to two reasons.
(Posted by Ritika Dange)
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