Populist policies may help rural recovery in India, says Jefferies overweighting staples shares

Populist policies may help rural recovery in India

More populist policies are likely to be the key options for the federal and state governments ahead of the national elections due next year, according to a recent report by Jefferies. The brokerage firm believes this would help the nascent recovery in rural demand. Analysts led by Mahesh Nandurkar, in a note dated May 10 wrote that with exit polls for a state election in Karnataka indicating a close outcome for the incumbent and opposition parties, more populist policies may emerge across the board.

Moreover, Jefferies, playing down the fears of a weak monsoon hitting rural demand also said that services and manufacturing account for a substantial chunk of rural incomes. “Migration of labour from rural to urban areas is persistent as evident in urban population growth (~2% p.a.) being ~4x rural growth. A large part of the rural consumption / local activity is hence driven by the remittances from urban areas,” its analysts said.

Jefferies also added that the rural economy is in the early stages of a recovery, as partly evident in rural wage growth at a 27-month high and NREGA employment demand being below pre-COVID levels. Jefferies recommended overweighting staples shares with a 6-12 month view, expecting they will benefit as the rural recovery picks up the pace and as margins improve with lower commodity prices; retains overweight on industrials and banks.

Speaking to MoneyControl on February 27, MD Director General Mrutyunjay Mohapatra said, “There is a weak El Niño in the Pacific. As of the latest situation, we are moving to a neutral situation in May-June. During monsoon there can be an El Niño impact. We should wait for April when the El Niño prediction will be accurate.”