Gujarat election results good news for rural-centric firms

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The manner in which the Bharatiya Janata Party (BJP) won Prime Minister Narendra Modi’s bastion of Gujarat is all set to boost investor sentiment for rural-centric firms. Brokerages, both domestic and global, pointed out that BJP’s troubles with Gujarat had been predominantly rural-centric and the party is likely to increase focus on boosting rural incomes and dealing with agrarian distress.

Though BJP might have won the state, capturing 99 seats out of 182, Credit Suisse analysts Neelkanth Mishra and Deepali Bhargava pointed out in a research note that the party “is unlikely to interpret these results as business-as-usual”.

Citi Group analysts Surendra Goyal and Vijit Jain agreed, pointing out that a “rural pivot” is possible in policy focus. “Rural India, coming off a low base, and with policy support, could throw up interesting opportunities for equity investors,” said Citi.

   Analysts expect a more rural deveopment focused Centre in 2018 as the BJP moves to contain discontent. Year 2018 is set to see a flurry of politically significant state elections. Out of the eight states going to the polls in 2018, four of the largest — Rajasthan, Madhya Pradesh, Chhattisgarh and Karnataka — have significant rural populations. Agrarian distress over the last few years has been well documented in these states — with some like Madhya Pradesh seeing violent farmer agitations.

As Axis Capital’s analysts observed, the BJP will need to repeat Monday’s performance in all the upcoming polls if the party is to achieve a simple majority in the Rajya Sabha by 2022.
The political dividends that could be gained is likely to prod the Centre to ramp up policies to improve subsidy delivery for farmers, innovations for better price realisation and improve the crop insurance scheme.

Recommending stocks that would benefit from rural spending, global financial services firm Macquarie said that other measures would include introducing minimum support prices (MSP) for more crops, buffer stocking for crops below MSP and public investment in agri sector. Most major advisory firms, including CLSA, Edelweiss Securities, Bank of America-Merrill Lynch, Kotak Securities and Goldman Sachs expect the government to fast track rural development schemes.

 

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