Govt pay hike may spur demand, but volume growth discounted: JM

Moneycontrol BureauBroking firm JM Financial says volume growth from increased demand arising out of higher salaries for government employees may have already been discounted.“While we believe the implementation of 7th PC (Pay Commission) will spur consumption demand on the back of higher per capita income and disbursement of arrears, no major volume surprises are expected as the effect of pay commission has already been taken into account,” says the JM note to clients.“From a sector perspective, a) in 4 wheelers segment, reasonable volume growth of around 12% has already been built b) in 2 wheelers, there is not much upside as 2W are much easily affordable and do not carry significant aspirational value both in the urban and semi-urban markets (50-60% share) c) for consumer appliances/durables companies we have already factored in a strong 12-13% volume growth and 3-4% pricing growth in FY17/18 (expected) and d) for paints, we do not expect any positive surprise to our 12-13% estimates due to 7 pay commission,” the note says.JM’s top picks are Hero Motocorp, Bajaj Auto, Somany Ceramics, Greenply, Bajaj Finance and Aditya Birla Fashion.