A farmer holds a millet plant for a photograph in a field on the outskirts of Bengaluru, India. (Photographer: Dhiraj Singh/Bloomberg)

Rural Stocks Good Bet In Struggling Market, BofAML Says

Rural stocks are good bets as the broader equity market can “continue to struggle” on higher valuations and earnings expectations, according to Bank of America Merrill Lynch.

Shares of two-wheeler makers, cement producers and consumer-staple firms should beat the broader market as government boosts spending in the villages to lift farm incomes, the global brokerage house said in a note on Monday.

BofAML likes tractor maker Mahindra, Hero MotoCorp and Hindustan Unilever.

As Prime Minister Narendra Modi faces eight state polls this year and general election in early 2019, the government may respond to an unfavourable outcome by increasing rural expenditure, BofAML said.

Rising discontent among farmers -- a powerful voting bloc -- has become the latest challenge for Modi, who’s promised to double farm incomes by 2022. Bumper harvests, boosted by good rain in 2016 and 2017 after back-to-back droughts, have hurt incomes and left them with huge debts.

The MSCI India has underperformed MSCI Emerging Market index by 10 percent in the year so far amid hardening bond yields, oil prices, budget deficits, issues with state banks.

With valuations and earnings expectations still high, Indian equities can continue to struggle the next few months.”
BofAML Report.