Sector-Picks 2018
What will be the key sectorial stories to watch out for in 2018?
Come year-end and the general question is, “What about markets”? This time will be no different. Let us look at 6 sectors that will be big stories in 2018…
Agri-Sector – Well, the BJP is taking no chances after Gujarat. You can look for a big thrust on drip irrigation, agri-inputs, hybrid seeds, fertilizers, agro-chemicals, post harvest infrastructure, farm logistics etc. All these could become multi-bagger ideas in 2018. If you find one, just buy one. There is no option but to give a big thrust to the farm sector. After it is 70% of India.
Automobiles – This is one sector that is not going off your radar in a hurry. Be it tractors, passenger cars, HCVs, LCVs or even two-wheelers, they are all going to be hot ideas in the coming year. With GST and demonetization behind us, auto could see rapid rebound in consumer demand. A thrust to agriculture and more dole-outs to the middle class means that auto could be much in demand. Auto companies are also going to pamper the audience with a wide choice. Watch for an outperformer!
Chemicals – This is the next big sector in which India is getting to be globally competitive. Globally, chemicals are shifting towards a more generic model and Indian chemical companies are perfectly poised to capitalize on this trend. Specialty chemicals could be the in-thing as India is best equipped to cater to the rising global demand.
Commodities – Our reference here is to the industrial commodities. That includes aluminum, zinc, copper etc. On the one hand there are going to be production cuts in China and on the other hand Chinese demand for these commodities is likely to gather steam. That means demand will be robust and the prices of all these metals on the LME is likely to remain bullish. For those who are worried about the rapid rise in metal prices, the story could continue in the next year too. Forget about commodity cycle; the demand is likely to remain extremely buoyant in 2018.
Defence – If you are wondering what happened to defence stocks, year 2018 could be the answer. Look out for a big thrust to the Make in India program. The government is going to use the coming year to give a big boost to in-sourcing defence requirements to the extent possible. Established companies in the defence sector could have a good time with rapid order flows. It will not necessarily be the largest and the best capitalized that will thrive. In fact, it will be the one that is most adaptable!
Broking Houses – You may be surprised, but watch out for brokers. As India undergoes a billion dollar shift towards greater participation in the equity markets, the big consolidation phase may be just starting out. The fittest brokers may see their revenues and profits growing manifold. They could be the dark horses of 2018!
Gujarat Verdict
What are the key takeaways from the Gujarat election outcome?
Despite the vagaries of the Gujarat counting last week, the results were largely along expected lines. One can argue that the BJP’s victory margin was narrower than expected, but that was to be expected after 22 years in power. So, what are the key takeaways?
Rural-Urban dichotomy…
There was obviously a wide chasm that has emerged in the pattern of voting in Gujarat. Ironically, BJP actually built on its vote share compared to 2012 but still the victory margin was much narrower. The answer lies in the rural-urban gap. Urban Gujarat including key urban centers like Ahmadabad, Baroda, Surat, Rajkot and Gandhinagar have voted emphatically in favor of the BJP. However, once you move towards rural areas, the trend is clearly favoring the Congress.
While most of the BJP losses in the rural centers have been on the back of narrow margins, majority of their urban wins have been on the back of huge margins. What, probably, saved the day for the BJP in Gujarat was unlike other states, Gujarat is highly urbanized. In fact, 45% of Gujarat is urbanized, which is substantially higher when compared to most of the other major states. In Gujarat, urban centers are generally hubs of manufacturing and trading. While GST was a hassle, these urban centers were relatively better off. At the end of the day, it is this urban dominance that saved the day for BJP and ensured they crossed the mark!
Rural focus needed…
What happened in Gujarat may actually be a major signal for the BJP strategy in the rest of India. Being the smart strategists that they are, the BJP must have realized that their big challenge between now and 2019 will be to address the needs of the agri-sector. A combination of bad monsoons, liquidity shortages in the aftermath of the note ban, weak mandi prices and rising debt have been the bane of Indian farmers. Gujarat is just a mirror and the actually problem will be a lot more acute as the BJP traverses the agricultural heartland of India. With key elections coming up in the states of Madhya Pradesh and Rajasthan, the BJP will want to get its agricultural act together. That is likely to be a key strategy fulcrum for the BJP in the coming months.
Modiji is India’s tallest leader…
In the midst of the heated campaign for Gujarat, it has once again underscored that Mr. Modi remains the tallest leader in India at this point of time. To an extent it was his personal brand and charisma that swung the Gujarat elections decisively for the BJP; especially in the urban centers. So, the PM will continue to remain the fulcrum of any BJP narrative in the coming state elections as well as the general elections in 2019. But, one thing is certain after Gujarat; that nobody will have a cakewalk in general elections 2019!
FRDI Bill
What could be its larger implications for savers…
Considering the hue and cry around the Federal Resolution and Deposit Insurance (FRDI) Bill, the government decided to put off the debate on the bill to the Budget session. Even though the bill will not be discussed in the Winter Session, it is in order to understand why this bill is controversial…
All about the Bail-in clause…
Currently, all deposits in scheduled banks are covered by insurance under the DICGC Act. This act assures to protect your deposits in the banks up to a level of Rs.1 lakh. The proposed FRDI Bill will be replacing the DICGC Act. That is still fine, but the big catch is that the new Bill will have a clause called the Bail-in clause. So, what exactly is this bail-in clause? Under the bail-in clause, the deposits will be insured up to a certain level. But the clause also implies that in the event of the bank falling into crisis, they will be legally allowed to use part of the deposits of the depositors to bail out the bank. Effectively, the bank will be authorized to do what the banks in Cyprus tried to do with public deposits after their loans to Greece went bad. Of course, the bank will issue bonds against the deposit but then as a depositor you will unwittingly become a risk capital provider as against a mere depositor in the bank. That will increase your risk substantially, something you may not really have bargained for. This is more so since bank deposits are the preferred medium for retirees!
Actually you need not worry…
Scratch the surface and there may not be much to worry for you. Even today, bank deposits only insure up to Rs.1 lakh. The only reason the people trust the banks is due to the implicit government guarantee that the RBI will intervene and bail out troubled banks in the event of any crisis. We saw that in case of Global Trust Bank in 2004 and later in the case of ICICI Bank in 2008. It was just the implicit backing of the government that has made Indian banking a preferred source of deposits. In fact, under FRDI, depositors may actually end up getting higher deposit insurance. That will be the right step because Indian banking insurance is woefully low and is just a fraction of the kind of protection that other BRICS nations offer. So the government backing will stay and so there is really not much to worry about!
Need to tread with caution…
However, the government must tread with caution. In the post FRDI scenario, depositors will expect a more explicit commitment of safety from the government. That is not a good idea. This could also be unpopular since millions of retirees and senior citizens rely purely on bank deposits for their relative safety and steady returns. FRDI Bill could be economically and politically sensitive. In the Indian context, it may be best to tread with caution!
