The recent equity selloff may have a favourable impact on shares of rural-focused companies and lenders with higher current account, savings account ratio.
That’s the word coming from Deutsche Bank, as it sees the ruling BJP government’s bid to raise farm income and a hike in agricultural prices leading to a revival in the rural economy over the next one year.
Investors are likely to start aligning their portfolios with government's policy initiatives, the lender's research arm said in a note. "This makes the risk-reward positively skewed towards rural reflation beneficiaries."
These are basically companies with a small-scale socioeconomic approach to building livable economies in both depressed rural communities and rapid growth areas.
Deutsche Bank's preferred stocks include:
- Hindustan Unilever Ltd.
- Dabur India Ltd.
- Mahindra and Mahindra Ltd.
- Dalmia Bharat Ltd.
- Shree Cement Ltd.
Deutsche Bank raised earnings estimates for the following:
- Hindustan Unilever
- Mahindra and Mahindra
- Jubilant FoodWorks Ltd.
- Oil and Natural Gas Corporation Ltd.
- Reliance Industries Ltd.
- Housing Development Finance Corporation Ltd.
- HDFC Bank Ltd.
The selloff also signals attractive rewards for higher growth that will lead to an acceleration in corporate earnings in future, the report added.
Retail Lenders A Positive Pick
The Reserve Bank of India’s latest move for a speedier resolution of stressed assets implies that stressed wholesale lenders will incur credit costs in the near term although it is a “laudable long-term move”.
In such a scenario, risk reward is skewed in favor of retail-oriented bank which have a lesser stressed wholesale lending book as the wholesale lending costs are expected to rise in future, said the report.
Deutsche Bank’s top retail picks with limited wholesale lending burden are:
Deutsche Bank expects the government to remain growth focused ahead of the general elections next year. As a consequence of this, banks with high CASA ratios (HDFC Bank at 44 percent and IndusInd Bank at 42 percent) will benefit from any reversal in the current rates or liquidity scenario.
Rural-Oriented NBFCs Over PSU Banks
Public sector banks are expected to face higher credit costs due to RBI's latest mandate, while non-banking finance companies are also expected to come across funding headwinds.