Historically, the Indian market has observed high volatility in the month immediately preceding the general elections.
What is different this time is the current global macro headwinds like trade war, slowing global growth, concerns around the US recession and the central bank’s autonomy that have been creating heightened tension among the market participants.
Data suggest that both central and state governments boost spending in the run-up to general elections. So as expected a similar thing was witnessed in the budget.
It is likely that the government could spend aggressively and pump in funds in the rural economy and will also look to stimulate the SME sector. Thus, thematically I think the consumption space will outperform others.
Therefore, sectors such as Fast Moving Consumer Goods (FMCG), Consumer Durables (CD), Electrical & Electronics, Agrochemicals, and Financials sector are likely to benefit from the government schemes.
Following are some of the stocks that are likely to provide healthy returns the election season–
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S.No. |
Company Name |
Industry |
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1. |
Automotive |
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2. |
FMCG |
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3. |
Multinational Consumer Products |
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4. |
FMCG |
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5. |
Electrical |
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6. |
Kitchen and Home Appliances |
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7. |
Automotive |
The company may witness strong growth in tractor volumes with the normal monsoon, higher MSPs, and resumption of infrastructure investments (10-20% of tractor demand).
As a result, tractor volume could grow at around 8-10% per year. Also, the company could see strong revenue growth with increasing non-tractor mechanization (implements, harvesters, etc.).
On the utility vehicles side, the passenger UVs are likely benefit from rural recovery and new launches. Further, its upcoming launches are expected to drive volumes higher.
The company is also responding to the changing dynamics of the industry. The company is expected to challenge market leaders like Maruti and Hyundai in the compact SUV segment, where it has a weak presence.
Outlook: There could be some weakness in pricing owing to aggressive marketing, but eventually, at the consolidated company level, the company may perform well.
For the Cigarette business, the Earning Before Interest and Tax (EBIT) have increased owing to stable taxation. However, there could be margin pressure due to rising leaf costs, tobacco costs and capsule filters.
However, ITC has taken double-digit price hikes in its crucial portfolio that accounts for the majority volume. Thus, the margins are likely to stabilize going forward.
In the FMCG segment, the EBIT margins have improved with strong growth in atta (flour), biscuits (Dark Fantasy has been growing double-digit), and Snacks and noodles.
The company is foraying into newer segments such as packaged non-basmati rice market.
The company has also been adding products in its different verticals. For example, the company added four variants of RTD milk beverages under the Sunfeast Wonderz brand in Karnataka and Tamil Nadu. In addition, it launched pouch milk under Aashirvaad Swasti and curd under Aashirvaad Swasti Dahi.
ITC also launched four new variants of Sunfeast Yippee noodles. In the snacks segment, the company launched traditional flavours snack Tedhe Medhe Wakhra Style under the Bingo brand. In addition, the company is looking to expand its dairy segment by launching paneer in Kolkata and milk beverages on a pan-India level in the near term.
Outlook: Thus, I feel the company’s strategy to reach profitable growth within each segment after achieving meaningful scale shall be a crucial support to the stock price.
The company posted healthy volume growth, benefiting the top line. Also, the company is focused on lower its operating cost. As a result, the staff cost has reduced, and the company has successfully lowered the other expenses while improving its capacity utilization levels.
The strategy is likely to be continued, and thus the margins at the operating level are expected to expand further.
The company’s market share in the toothpaste and toothbrush category should expand with the uptrend in volume growth.
Also, with increased traction in the herbal segment, newly launched and rising ad spending will likely support future growth.
Lastly, the company enjoys a market share of 60% in rural India, with rural contributing to over 40% of its sales. This makes it a promising play for the company on the back of underway rural recovery.
The company has been witnessing health volume-led growth. Also, with improving utilization levels, the operating profit has been growing for India’s most significant FMCG player.
The company is committed to innovation, market development, and an improved supply chain. Thus, the growth has been reasonably balanced across segments especially the homecare segment which managed to deliver double-digit growth despite a high base.
The continued focus on volume-led growth and its committed focus on market development activities, and customer-focused innovation shall help the company grow over time.
Lastly, the company has been doing a lot of activities catering to the upper middle class and high-class society. Thus with rising premiumization, the company could see support in its profitability level. Because the company maintains a strong position to deliver above market expectations in a somewhat competitive industry, I continue to maintain my conviction in the scrip.
Also, the stock could see support from the synergies the company would derive from the merger of the GSK franchise.
The company is likely to see healthy growth and margin in the Electric consumer durable (ECD) segment driven by the premiumization of fans, volume growth in pumps and the revamped portfolio of geysers. Also, the company has embarked upon a cost reduction programme which is likely to help the company attain a double-digit margin.
In addition to the planned product launches in the pump segment, the company has developed innovative anti-bacterial LED lighting. This light can kill up to 80% of bacteria in homes and has received certification from the Indian Medical Association. With a premium 15% premium over the prevailing LED prices, the company is likely to get success in the product as it readies itself to launch the product at a pan-India level.
Outlook: With healthy fixed-asset turnover, steady cash flow, and a healthy working capital cycle; the company continues to be a buy for the season.
TTK Prestige operates in three major segments – Pressure Cooker & Pans, Non-stick Cookware and Kitchen Electric Appliances.
The company enjoys high brand recall that enables it to maintain a dominating position in the segments in which they operate (60% in the outer-lid pressure cooker, ~15% in the inner-lid pressure cooker within the organized market and 25% in the induction cooktop space).
Revenue from the domestic business and export business grew at a double-digit pace. The company could also benefit from the softening of commodity prices. This shall augur well for gross margin expansion and subsequently the operating margins.
The company is also focusing on cost optimization techniques including reduction of another cost, employee cost. This is likely to add to the margins further.
The company has been introducing new stock keeping units (SKUs) that is adding to its product portfolio. Also, it has outlined capital expenditure for the next three years to add capacity in the cookware and cooker segment.
Lastly, the company has rechristened PSK into Prestige Xclusive with the new stores to distribute cleaning solutions and other appliances. In addition, the company has focused on adding nearly 500 stores in the next three years. This shall help margins due to the premiumization charged through these stores. Thus, I continue to remain bullish on the stock over the long term.
For the passenger vehicle segment, the demand was impacted in H2 of 2018 due to high fuel prices, higher interest rates, increased insurance costs, and a lack of new product launches. It is found that the weakness was primarily due to the financing issues. Thus, it is likely that the demand for PV was deferred and not destructed.
The correction in fuel prices, resolution of liquidity issues and new product launches are likely to support the demand. The medium-term view for the company looks bright, particularly with the launches like New WagonR, Vitara, New Alto, and Future S Concept lined up.
It is possible that the company will sustain its margins in the range of 13-15% over the medium term despite rising competition. This is primarily due to improving product mix, reduction in discounts, the rising contribution from new launches, execution of modular platform strategy, the increasing contribution from premium channels such as Nexa, the ramp-up of Gujarat facility, and reduction in royalty.
Thus, the company continues to remain my favourable bet this election season.
Following are some of the favourable picks-
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Other Names are – |
Elections often affect market conditions. Thus, as an investor, you should be cautious about your investment decisions. It is necessary to take due consideration of the market's ups and downs before reaching the decision of buying or selling the stocks of a certain company.