The hidden consumer story - which sectors will really benefit - Motilal Oswal
The hidden consumer story - which sectors will really benefit - Motilal Oswal

The hidden consumer story which sectors will really benefit

At a time when the markets have been obsessed with sectors like banking and capital goods, the real beneficiary of the Union Budget appears to be the consumer sector. The reasons are many. The rural demand has been given a big push with direct and indirect benefits. There has been a small effort to please the tax payers and a much bigger effort to please the senior citizens. Above all, the trickle-down effect of a lot of policy measures announced in this budget is likely to be value accretive for a variety of consumer driven sectors. Here are a few sectors that could benefit from the consumer story..

Agri inputs could be the big consumer story
Suddenly, the budget appears to have turned the tide for the agri inputs segment. At a very macro level, the budget has allocated Rs.14.34 trillion towards rural livelihood. This is not only about better farm incomes but also better non-farm incomes to de-risk the economics of farming. Additionally, the government has assured an MSP that is 50% higher than the cost of production. The farmer will now be a lot more willing to spending on hybrid seeds, agro chemicals, fertilizers and irrigation systems as he is now assured of a 50% mark up on his cost of production. Let us not forget that tractors are another key farm input and their demand normally is positively correlated with the rise in rural incomes. This sector may not be really represented in the Nifty or the Sensex but this is where a lot of value creation by mid caps could actually happen.

A boost to FMCG and consumer durables from the rural landscape
The Union Budget has actually given an action plan for the farmers to double incomes by 2022. It is no longer just a statement of intent. A combination of better MSP, improved post harvest infrastructure, better quality of life in rural areas and the focus on alternative livelihood is surely going to impact the purchasing power of rural India positively. This is a population that has a strong propensity to consume and this trend is more evident in the area of aspirational products like FMCG products, high end toiletries, eating habits, modes of travel etc. So sectors as diverse as FMCG, food products, toiletries, consumer goods, white goods, two wheelers, and entry-level cars could all benefit from this higher purchasing power in rural areas.

A new class of consumer called the senior citizen
For a very long time, they were never considered as an independent market but more as an attachment market where decisions were not taken by them. That could be changing. In the last two years the 7th CPC has given substantial purchasing power in the hands of a lot of senior citizens. The latest Union Budget has exempted interest on deposits up to Rs.50,000 from tax as against an unrealistic limit of Rs.10,000 earlier. The TDS hassle has also been eliminated in this budget. In addition, buying health insurance for senior citizens has become more tax efficient. All these factors have added up to ensure that the senior citizen emerges as a distinct consumer class. This is a set of people that are going to be increasingly wooed as a distinct market. If that happens, then it is largely thanks to this Union Budget.

A consumption story backing the National Health Plan
Finally, there is going to be a very interesting consumption story backing up the National Health Plan. To begin with, this is an ambitious plan to cover nearly 10 crore households for Rs.5 lakh of medical cover per household as a floater. Assuming that the average size of the family is 5 members then we are looking at 50 crore Indians or over 40% of the Indian population covered under this scheme. In terms of magnitude and complexity this is going to be unprecedented. But the big question is on delivery. You will need private insurance companies to come forward and help structure products for the government. You will also require private hospitals, testing labs and diagnostic centres to come forward and translate this plan into reality. Finally, you will need a lot of last-mile support from software, telecom, banking and MFIs to complete this loop. All these sectors will end up being part of a much larger consumer play.

So, there is a very interesting consumer play emerging as an outcome of the budget. If you understand the opportunity available, there are a good many ways to play this opportunity. It could actually translate into serious shareholder returns for you.
 

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