India’s stimulus is not comparable to the likes of the US, Germany and Japan but at 10% of GDP, India’s stimulus is not small by any barometer. For the Indian economy, it is large enough to significantly impact the fortunes of the economy and the equity markets. Here is a quick take on which sectors will benefit from Stimulus 2.0.
NBFCs and HFCs will be the immediate beneficiaries
The much needed liquidity support will be a big boon for NBFCs and HFCs as they negotiate loan repayment of over $50 billion in the next one year. The Rs3 trillion lending to MSMEs will be delivered by the PSU banks and the NBFCs and will come with the added advantage of 100% government guarantee. In addition, the liquidity support of Rs75,000cr will help NBFCs through the liquidity mismatch. Of course, weak NBFCs will continue to struggle but NBFCs and HFCs with sound balance sheets could get a leg up from the package. HFCs are also likely to benefit from the affordable housing thrust.
Rural consumption stocks could benefit from Stimulus 2.0
The government has designed Stimulus 2.0 to ensure that rural consumption gets back into gear. These include measures like Rs3 trillion for farmers, special package for migrant labour, affordable housing scheme, expansion of MNREGA etc. All these measures are expected to provide a launching pad for rural demand. The key beneficiary will be large FMCG companies with a strong rural franchise. But the rural thrust will also be positive for sectors like agrochemicals, fertilizers, hybrid seeds, drip irrigation systems etc.
Watch out for a recovery in automobile stocks
SIAM has projected weak auto numbers for the coming year. But the optimism could stem from the fact that most auto companies will be able to put their supply chains in place much faster than other industries. For auto companies, the supply chain is normally contiguous and they could be first off the block to benefit from the stimulus. As purchasing power gets a boost from the liquidity infusion, two wheelers could see an immediate expansion in demand followed by entry level cars and heavy vehicles. At least, the stimulus will ensure that auto stocks could bottom out.
Capital goods could be the dark horse
It may be early days to call a turnaround in the capital investment cycle but that could be the dark horse. The reason stocks like L&T and BHEL are rallying is they represent two distinct opportunities. It is estimated that lower costs, cheaper real estate and easy funding could spur a massive capital investment demand from Indian corporates. L&T would be the big beneficiary. Stimulus 2.0 also has “Make in India” as a key theme. Companies like BHEL with their vast capacities are best positioned to offer their infrastructure and facilities for outsourcing. That could be an interesting line of revenues for such companies.
Finally, let us also look at some sectors that could come under pressure. For example, the Rs90,000cr DISCOM stimulus package will be negative for power financers. Banks, insurers and AMCs could lose out on their bond portfolios as higher fiscal deficit (estimated at closer to 7.9% in FY21) could crowd out borrowings and spike yields. That part of the stimulus remains a risk; for the BFSI space and for equity valuations overall!