We have always heard the quip that the Indian consumption story is largely intact and should drive the markets. Year 2019 could actually see the consumer sector outperforming the other sectors by a margin. Let us look at the outlook for 5 key sectors.
The one theme that will continue to underpin the India story will be consumer goods. Principally, let by rising incomes and growing demand, stocks ranging from Hindustan Unilever to Havells and Hero Honda could see a sharp upturn in demand. If oil prices stay under check then we have the added advantage of lower input costs. Price inflation typically works in favor of these companies. From all angles, this looks to be the big story of 2019.
If farm incomes have to be doubled by 2022, then a big push to rural incomes is a must. There is already an Rs.3 trillion farmer compensation that is being worked out. NDA will not take any chances after the rural reverses in Gujarat, Karnataka and the Hindi heart-land. That means a huge spurt in demand for agro chemicals, fertilizers, hybrid seeds, FMCG products, entry level automobiles etc. This could be both the input side and the output side of rural India and could be the big sub story for the year 2019.
PSU banks and NBFCs
Believe it or not, but these stocks could be the surprise pack for 2019. PSU banks have recovered Rs.80,000 crore in 2018 and another Rs.100,000 crore will be coming back into their books in 2019. Government has promised them more capital and also greater lenience on the liquidity and the PCA front. We like the high performing PSU banks as well as the banks that are likely merger candidates as well as banks that are likely to get out of PCA. If lending starts once again, it could be an added boost for PSU banks and last mile NBFCs.
This is not being talked about a lot, but it could be the joker in the pack. With industrial credit back and capacity utilizations improving, capital cycle is most likely to turn around in the coming year. This may not be a sure short bet but the downside risk is limited.
IT and Pharma
This may be the two sectors to be cautious about. A trade war and an inverted US yield curve is never good news for US spending and corporate IT investments. If the dollar weakens due to a dovish view by the Fed, then the big advantage for these export sectors could go away. We suggest being a tad cautious on the export oriented space for the calendar year 2019. ©