Moneycontrol
Last Updated : Jul 05, 2018 05:00 PM IST | Source: Moneycontrol.com

FMCG, consumer, auto and banking stocks are likely to benefit from hike in MSP

MSP is a price at which the government buys crops from the farmers, irrespective of its price, to protect agriculture producers from sharp fall in farm prices.

Moneycontrol News @moneycontrolcom

In a major move, the Union Cabinet on Wednesday approved the proposal to hike minimum support price (MSP) for all Kharif crops by 1.5 times of the input cost for the 2018-19 season, a move that is expected to boost farmers’ income and benefit stocks in FMCG, consumer, auto as well as banking space.

MSP is a price at which the government buys crops from the farmers, irrespective of its price, to protect agriculture producers from sharp fall in farm prices.

The move came as a big relief to Indian market as it removes uncertainty around the hike in MSP and much-needed assurance from the finance minister Arun Jaitley that it will not impact the fiscal deficit.

On the sectoral front, stocks which get direct benefit from the hike in MSP such as consumer, auto, FMCG as well as banking are likely to benefit the most, suggest experts. Agricultural stocks in the fertiliser space and irrigation will also get benefitted.

Union Minister Arun Jaitley on Wednesday said the government's fiscal deficit target would not be breached on account of higher MSP for 14 crops as large provisioning for food subsidy has already been made in the Budget for current fiscal.

The added cost of MSP is 0.2 percent of GDP, according to a media report which quoted a Cabinet note. The share of paddy, which is the main kharif crop, in the additional outgo will be around Rs 12,300 crore.

“According to the government, the excess expenditure on MSP would be absorbed and not affect the fiscal deficit target. However, we remain cautious as we believe higher MSP could put pressure on the fiscal deficit target, especially considering the fact that crude oil prices and the currency depreciation are challenges which have already cropped up in the current fiscal,” Jayant Manglik, President, Religare Broking Ltd told Moneycontrol.

“The MSP increase comes as a big relief for Indian farmers as it would aid their incomes. We believe higher rural income will be a positive for consumption-driven sectors such as FMCG, Consumer, Auto and Banking & NBFC’s. Further, higher rural income would also increase usage of fertilizers which would aid growth in the Agri and related sectors,” he said.

The expected rise in MSP has been on the radar of the Reserve Bank of India and it had flagged this as a concern since the government announced the FY19 budget. The impact of the rise in kharif MSP alone has the potential of increasing retail inflation by 70bp, some experts quoted.

“With the expectation of normal monsoon this year, the country is going to produce about 95 million tonnes of rice and with the MSP of 1700 rupees per 100 kg the value comes to around Rs 165,000 crore,” Ritesh Kumar Sahu- Research Analyst, Agri Commodities at Angel Broking told Moneycontrol.

“By declaring MSP does not mean the prices of Agri-commodities will go higher unless the government makes it compulsory for the buyers to buy at MSP or above it. The current market price always responds to the supply-demand dynamics and if it is disturbed it surely *impact the fiscal math of the government*,” he said.

Here’s what other global brokerage firms are saying:

Elara Capital:

The government announces the highest increase in MSP since the financial year-ended 2013. The MSP hike is likely to act as a price signal and may boost output.

Kotak Institutional Equities:

The quantum of the hike was in line with estimates. The modality of MSP implementation is more important for rural demand. The statistical impact on inflation is likely to be 90-95 basis points, but the real impact might be around 40-60 basis points. But, the fiscal impact is likely to be minimal.

UBS:

The price support to farmers bodes well towards improving the rural demand. The global investment bank expects 35-70 basis points impact on CPI inflation depending on procurement policy. The fiscal impact to be 0.1 percent of GDP in 2018-19.
First Published on Jul 5, 2018 01:12 pm
Loading...
Sections
Follow us on
Available On