D-Street has already given a thumbs-up to the Modi govt and expects it retain power in 2019 polls.
The S&P BSE Sensex rose 26 percent while Nifty rallied over 30 percent as Modi-led government completes three years in office today. Narendra Modi was sworn in as India’s 15th Prime Minster on May 26, 2014.
D-Street which has already given a thumbs-up to the Modi government expects it to return to power in the year 2019. The policies implemented by the government in the last three years has far reaching impact on Indian economy and the fruits of which investors would only be able to see in the next 2-3 years.
The pro-growth reforms initiated by the government to boost consumption, rural employment, bringing down non-performing assets, real estate, boost manufacturing, doing business, making India as the best investment destination for foreign investors, streamlining indirect tax structure by goods & services tax (GST), among others has far reaching impact.
“Current government policies are quite pervasive and impact multiple sectors. We believe though upliftment of lower strata of society is the main theme which cuts across the reform process,” Saravana Kumar, CIO at LIC MF told Moneycontrol.
“In this context, we are positive on consumption themes of FMCG and Financials. We are also positive on infrastructure sector due to the thrust of government on roads, rails and defense projects,” he said.
We have collated a list of top seven sectors which are likely to benefit the most from the policies initiated by the Modi government in the past three years:
Analyst: Tushar Pendharkar, Head of Research, Right Horizons Investment Advisory Services
Highways, railways and urban transport could witness huge government-led investments before general elections of 2019. In addition, renewable energy, T&D (power) and rural electrification are likely to see great order inflows.
Most of the funding would come from Government as the support from private players could be low due to financial stress on their balance sheet. “We believe that government could make a capital expenditure of around USD 12-15 billion in the next couple of years through IPOs and OFS in PSUs,” said Pendharkar.
Direct Beneficiaries of the move could be L&T, ABB, GE T&D, IRB, IL&FS Transportation.
Indirect Beneficiaries could be Cummins India, GE India, Ingersol Rand, Timken India, Cement Cos, and Steel companies.
Rising disposable income (due to better rural spending), new launches and improving urban infrastructure triggered passenger vehicle & 2 wheeler sales and the trend is expected to remain strong.
In addition, rising demand for infrastructure and state transport could trigger demand for the commercial vehicle.
Direct Beneficiaries of rising disposable income are Maruti Suzuki, M&M, Tata Motors, Ashok Leyland, and Eicher Motors. While indirect beneficiaries are Wabco India, Jamna Auto, Subros, tyres and battery manufacturers due to huge replacement market
Analyst: Vinod Nair, Head of Research at Geojit Financial Services.
Banks have been beneficiaries of major policy actions of government like financial inclusion, demonetization, affordable housing schemes to name a few. Demonetisation led to a flush of low-cost deposits into banking system which helped bring down the cost of funds and lower lending rates.
Further, transactions under the formal banking channels have seen a dramatic shift supported by the government measures of financial inclusion and linking of various government schemes.
Setting up of MPC has added more transparency to the RBI’s monetary policy actions. Further, Government is moving in the right direction to strengthen the PSU banks space by favouring a merger of weaker small banks into much larger banks.
The revised PCA regulatory framework is expected to trigger the next phase of consolidation largely in the PSUB space. This will strengthen PSU banking space with fewer but stronger banks. Larger PSU banks will have significant benefits from synergies and scope of activity.
The infrastructure sector is the key growth drivers of the Indian economy. The industry witnessed low demand due to slowdown and deteriorating balance sheets with mounting debts.
Currently, the infrastructure space is witnessing traction as the govt has increased infrastructure spending and deploying more orders which will stimulate the order book of infra space. Consequently, this will provide scalability and visibility to the future revenue book.
Building roads, railway, metro rail, airport modernization, Transmission & Distribution were the key area the government is giving more focus. On the other hand, the initiatives like the introduction of InvITs (Infrastructure Investment Trust) will help to provide long-term refinance for existing infrastructure projects. While Government’s action plan through Niti Aayog for developing & transforming infrastructure will cement long-term benefit to the sector.
GoI is giving greater priority to defence in its “Make in India” programme with emphasis on indigenization to reduce import cost. The measures taken include: hike in FDI in defence, fast tracking of delayed projects and relaxed industrial license norms to build domestic capabilities.
Additionally, a new defence procurement policy (DPP) was introduced in 2016, wherein Indian designed, developed and manufactured products to get priority with a focus on enhancing the role of MSMEs & deep interaction with the industry at every stage of procurement.
Further to attain long-term self-reliance on strategic defence projects a “strategic partnership (SP)" policy is finalised to boost the private sector's role in defence production. Going forward domestic private sector defence players are expected to benefit from the reforms measures.
Analyst: Sunil Sharma, Chief Investment Officer, Sanctum Wealth Management.
Affordable Housing/Real Estate
The most visible initiatives are the government’s plan for Housing for All as well as the government’s plans for infrastructure build out.
Since the timing of government flows can often be unpredictable, we’ve focused on identifying means of playing these initiatives via sectors that have predictable growth that isn’t necessarily dependent on the government’s initiatives kicking in on a predictable schedule.
Further, the business models for companies in housing finance, let’s say, are far more predictable and attractive than the business model of a real estate developer.
“With developer’s taking far greater risks and sitting on leveraged balance sheets, we prefer to play real estate through housing finance companies,” said Sharma.
CementFurther, cement is another area that is challenged currently, but has cyclical characteristics that will kick in as these initiatives gain traction. Finally, we’d round out our preference with a focus on building materials, pipes and adhesive manufacturers, paints
and the like.
Within real estate, we’re interested in players with asset-light models and a focus on the affordable housing segment.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol are their own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.