Sectors and stocks which stand to gain


These are the sectors and the stocks, which we believe would benefit the most if the reelected Congress-led government succeeds in fulfilling its
promises. But forget not, these are the long-term bets and hence are prone to the short-term fluctuations in stock markets!


CEMENT

The cement sector during FY 09 had already benefited from rural housing and government-funded infrastructure projects, which helped total despatches rise 8% y - o-y to 181 million tonnes. And if the re-elected UPA government takes fresh steps to expand infrastructure and rural projects, cement companies will be the direct beneficiaries.

OUR PICK

ACC (CMP: Rs 729, P/E: 11)

For instance, Holcim-controlled ACC, which is an pan India player and one of the leading players in the sectors, would benefit from such an infrastructural push by the government. During CY 08, this company had grown its despatches by 4.9 % y-o-y to 20.86 million tonnes.


BANKING

The government's initiatives to infuse growth in rural infrastructure and to stabilise overall economy will have a trickle down effect on the banking sector. The government had earlier emphasised that public sector banks should have capital adequacy ratio of 12% to strengthen their operations.

OUR PICK

SBI (CMP: Rs 1731.7, P/E: 12.1)

Being the default banker to the government, State Bank of India (SBI) is expected to be a major beneficiary of the government's expansion plans. Also now that Congress led UPA government with other allies has a majority in the parliament, it will now be far easier for SBI to integrate its six associate banks with itself.



AUTO

Companies in the auto sector that focus on entry level market of two and four wheelers meant for cost conscious customers would see buoyant demand scenario once the rural income gets a boost due to government's thrust on rural growth.

OUR PICKS

Hero Honda (CMP: Rs 1294.1, P/E: 20.2), Maruti Suzuki (CMP: Rs 960, P/E: 22.8)

While Hero Honda leads the pack in the economical two wheeler segemts, Maruti Suzuki leads the market for entry level cars. Both the companies are expected to see higher demand from rural markets in near future.



TELECOM

Mobile operators have been rapidly expanding their operations in rural India. The process will get a further boost given the government's focus on taking telecom services to the grass root level. UPA government has also promised in its manifesto to spread broadband services in the whole country in next three years. The sector can also expect further rationalisation in tariff rates and license fees, which may boost operational efficiencies.

OUR PICK

Bharti Airtel (CMP: Rs 857.9, P/E: 21), Tata Comm (CMP: Rs 585.9, P/E: 61.3)

With over 60% share of rural penetration, Bharti is slated to be the biggest beneficiary of the government's thrust on rural development. WiMax is a favoured technology to take broadband to rural areas. Tata Communications with its Wimax initiatives is likely to play a major role in this venture.

 

POWER

Power sector is likely to get a big boost due to government's programme to electrify every nook and corner of the country. A thrust on nuclear energy and subsequent agreement with the US Department of energy to secure future fuel needs, suppliers to this segment would benefit.

OUR PICK

Rural Electrification Corpn (CMP: Rs 138.6, P/E: 10.6)

Power Finance Corpn (CMP: Rs 200.3, P/E: 17)

NTPC (CMP: Rs 216.4, P/E: 24)

Areva T&D (CMP: Rs 317, P/E: 33.9)



CAPITAL GOODS

The sector so far has been benefited by strong demand from government's infrastructure projects . This is likely to continue given the UPA's thrust on its 'Bharat Nirman' project, which includes development of roads, water resources, electricity and other nationwide infrastructure work.

OUR PICKS

L&T (CMP: Rs 1301.4, P/E: 22.1)

Siemens (CMP: Rs 455.1, P/E: 16.1)

Bhel (CMP: Rs 1982, P/E: 33.4)

All the three companies are leaders in their segments . Being India's leading engineering and infrastructure company, L&T will gain from any government plans to expand infrastructure. The other two will be benefited from the reforms in the power generation sector.



PHARMA

The sector will gain from government programme to aggressively expand healthcare facilities in the country. Moreover, improvement in infrastructure will also help in imporving the logistics and hence penetration of pharma companies in far flung areas.

OUR PICKS

Cipla (CMP: Rs 222.3, P/E: 22.5)

Glaxosmithkline Pharma (CMP: Rs 1094.4, P/E: 15.5)

These companies being leaders in domestic market are likely to be benefited with any government expenditure in the healthcare space.



FMCG

The National Rural Employment Guarantee Scheme (NREGS) and Sixth Pay Commission have helped in boosting rural demand. This is likely to benefit the FMCG sector.

OUR PICK

Hindustan Unilever (CMP: Rs 231.9, P/E: 24.2)

Being India's leading FMCG company, Hindustan Unilever will gain from any government expenditure.



AGRICULTURE

The government has promised to achieve food security by enacting a 'Right to Food' Act. This will need a significant increase in food-grain production, which in turn will raise the demand for fertilisers and pesticides. UPA also expects to increase the total arable land area under irrigation over next few years. All such initiatives bode well for companies that cater to these segments.

OUR PICKS

Coromandal Fertilisers (CMP: Rs 169.5, P/E: 4.5)

Rallis India (CMP: Rs 649.4, P/E: 10.9)

Jain Irrigation (CMP: Rs 567, P/E: 33.4)

Agro-chemicals manufacturer Rallies and fertilisers maker Coromandal are likely to be beneficiaries of UPA's food for all initatives. Jain Irrigation is well positioned to be benefited from the government's plan to bring more farm areas under micro irrigation.



STEEL

The domestic steel demand seems to be intact and India is one of those few countries in the world which is expected to register a growth rate of 5-6 %. The UPA govt. initiatives in different rural development programs and higher spends on infrastructure would definitely boost the domestic steel demand.

OUR PICK

Sail (CMP: Rs 158.5, P/E: 9.3)

Sail is focused on domestic market where the demand is expected to remain stable. It has zero debt, no foreign operations, not expanded its capacity recently and is partially integrated. All these factors augur well for Sail during such challenging times.



RETAIL

The retail sector's wait for opening up of the FDI route for foreign retailers seems to be coming to an end. As the UPA government would no longer need the support of the Left front, which was opposing the change in the FDI policy and allowing foreign players into the domestic industry, retail sector seems to be poised for growth.

OUR PICK

Pantaloon (CMP: Rs 300.4, P/E: 38.5)

Being the largest player, Pantaloon Retail would benefit with the change in the FDI policy. Not only would this increase the fund flow into the sector but also help the industry gain from the experience of some of the established international player.


Contributed by Amriteshwar Mathur, Karan Sehgal, Kiran Kabtta Somvanshi, Ranjit Shinde, Santanu Mishra and Supriya Verma Mishra