The Indian equity market has shown good strength, with it having recovered from
the recent correction which was in the wake of global sell-off caused by Britain’s
surprise vote to exit the EU in the referendum election a.k.a. the BREXIT. The
strength in the recovery clearly indicates that India is in a favorable situation vis-avis
other countries, especially other emerging markets.
Positive sentiments in favor of India’s prospects stem from an expected
improvement in corporate earnings over FY2016-17. The improvement is
expected to be driven by higher consumption as well as higher government
spends on infrastructure and rural economy, with the latter expected to further
benefit from an above-normal monsoon this year which is widely anticipated.
The monsoon which started late this year was lagging initially but has caught up
pace in the last few weeks. The turnaround seen in the last few weeks has resulted
in cumulative rainfall till date turning into surplus of 1.3% over long period
average and in comparison to 11.1% deficit witnessed initially. The predicted
above normal monsoon will ensure adequate crop production and hence food
inflation will remain under check which will provide relief to the already stressed
rural economy. Two consecutive years of drought like situation had resulted in
depressed rural consumption which should bounce back this year.
In addition to this, implementation of the Seventh Pay Commission will result in
higher disposable incomes in the hands of consumers which backs our
constructive opinion about the consumption theme of India.
Our top-picks are focused on companies that will benefit from this trend of strong
consumption and government spending on infrastructure. Our consumption
based plays include Blue Star, Voltas, Bajaj Electricals, Siyaram Silk Mills and
Radico Khaitan. We have added Goodyear India in our top picks as it is a likely
beneficiary of a good monsoon due to its large presence in the tractor tyre
segment. Our picks that will benefit from higher government focus to lower
borrowing costs include LIC Housing Finance, Equitas Holdings, Dewan Housing
Finance, Mahindra Lifespace, NBCC and IL&FS Transportation Networks.

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