CLSA is bullish on consumption-driven stocks in India even as the domestic macro environment remains uncertain.
The March quarter earnings indicate that urban discretionary consumption has been doing well and the management commentary suggests rural consumption is reviving, the brokerage said in a note. Data have thrown up similar indications.
Consumption spend has been growing at 11 percent while private investments —as indicted by gross fixed capital formation—kept falling driven by weak property markets and a lack of capex plans by corporates, CLSA said. Household debt-to-GDP ratio, another indicator of consumption growth, is rising from its current low level. As a result, credit-driven consumption growth can be a structural tailwind, according to the brokerage.
Rural consumption is likely to gain momentum ahead of the next general election. That’s because the government’s impetus on welfare programmes is going to increase. Measures such as farm loan waivers and aggressive land purchase programmes for roads are beginning to fructify.
We expect more explicit cash support for farmers, higher crop realisation and more farm loan waivers to happen, which should help rural consumption.CLSA
CLSA is bullish on these 10 stocks in the consumption space:
Mahindra & Mahindra Ltd.
The stock is the most direct and cheapest rural consumption play. The anticipated launch of its multi-purpose vehicle in the second quarter of this financial year might serve as a trigger.
With Goods and Services Tax-led disruptions over, re-rating of the stock is possible. However, a probable tax hike could serve as an impediment.
The stock has the highest rural exposure and offers attractive valuations. The recent underperformance has been due to margin concerns. Volume growth has picked up pace.
Glaxosmithkline Consumer Healthcare Ltd.
The stock is the second-cheapest pick in the space and its 8 percent volume growth in the fourth quarter makes it an attractive play. Parent GSK’s corporate activity can be an overhang.
Crompton Greaves Conumer Electricals Ltd.
CLSA expects the company to grow 30 percent in compounded annual terms, making it an attractive bet.
Zee Entertainment Enterprises Ltd.
The revival of ad spending on the back of upcoming launches is likely to drive a 15 percent domestic ad revenue over the next three years in compounded annual growth rate.
DB Corp Ltd.
The company’s print advertisement growth is likely to revive due to state elections in most of its key markets.
Dr. Lal Pathlabs Ltd.
The diagnostic services provider has an asset light model and trades at an attractive valuation. The company’s volume growth also recovered from single digits to 25 percent in the second half of financial year 2018.
Housing Development Finance Corporation Ltd.
The company’s estimated price-to-book ratio of 2.1 is below average, with structural return on equities in the range of 18-20 percent. This is one of the best ways to play a potential housing recovery, according to CLSA.
ICICI Prudential Life Insurance Company Ltd.
The company’s healthy earnings growth makes case for a possible re-rating by brokerages.