How to play the rural spending story of Union Budget 2018
The budget is certainly one with a rural twist. From rural livelihood programs to free gas connections and electricity to a massive National Health Program, there is a lot in it for the rural masses. The price assurance to farmers at 1.5 times the cost of production is another big positive for rural India. As an investor, how can you play this rural biased trend more credibly?
Direct agri beneficiaries
The fixing of the minimum support price of Kharif crop at 1.5 times the cost of production is likely to be positive in two ways. Firstly, it assures a good mark up over the cost as MSP and that will sustain the interest of the farmers. Secondly, the cost based formula leaves leeway for the farmers to improve productivity through the use of hybrid seeds, agrochemicals and fertilizers. All these are collectively expected to further increase the productivity of farmers and also their output and earnings. As an investor, you should focus on direct beneficiaries of this demand which could come from companies into the manufacture of agrochemicals, leaders in hybrid seeds and makers of fertilizers. You can also go a step further and buy companies that make tractors as that would be a direct beneficiary from the higher outlays that farmers make towards their business. There are going to be a lot of direct beneficiaries in the rural game and these stocks can truly turn out to be multi-baggers.
The rural story is not just about the farm but also about the high propensity to consume. We have seen that during the Green Revolution in Punjab that higher income levels led to a sharp rise in consumption demand. Higher rural incomes and lower uncertainty mean that the rural consumers have more money to spend on a variety of products like two-wheelers, entry-level cars, aspirational toiletry products, futuristic investments etc. One can watch out for two-wheelers, passenger car makers and FMCG and consumer durables to benefit from this trend. Even futuristic segments like the drip irrigation makers could benefit as farmers will have more space to look at the future.
Play the insurance game
The National Health Plan to cover 10 crore families up to Rs.5 lakh per annum will cover nearly 40% of the Indian population and will be the largest such project in the world. It opens up a big scope for insurance companies in the private sector to structure unique products on a very large scale. Secondly, the testing and service delivery will have to done by private participation and it is another business opportunity for laboratories, testing centers, hospitals etc. Finally, the last-mile specialists will also benefit as this will call for a huge degree of micro penetration. Play accordingly! ©