We have been highlighting over the past few months as to how some pockets of the economy are showing signs of relatively higher traction despite the overall economy recovering only gradually. While investment demand in India has remained subdued, consumption patterns show a healthy picture.
Two wheelers & Passenger cars continued to accelerate while White goods & other consumer products saw further pickup in growth. A 25% growth in two wheeler sales numbers and 12% growth in passenger car sales is indeed a reflection of consumption demand picking up.
Service sector was again the start performer in GDP for Q1FY17. We sense that a part of this growth is fuelled by government spending, which should also spur a revival in the corporate capex cycle. The 1QFY2017 GVA data shows that the economy has grown by 7.3%, with industry growing by 6% and services growing by 9.6%. On the back of good monsoon season, we expect softening in food prices, going forward, leading to inflation being under control. We are of the view that implementation of the 7th Pay Commission will further boost consumption. While capex cycle has been delayed, but green shoots visible in many sectors across the economy.
We have been vocal about consumption and infrastructure based themes playing out well and the recent favourable developments and cues mentioned above add to our conviction. We continue to like consumption based companies like Blue Star, Bajaj Electricals, Siyaram Silk Mills and Radico Khaitan. We have already seen revival in tractor demand and to play the monsoon theme we believe Goodyear India is the right candidate as it is among the leaders in terms of market share in tractor tyres. To play on government’s infrastructure spending and in anticipation of a lower interest rates regime, we believe ITNL, Mahindra Life Space, Equitas Holding are good picks.

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