Investing in a year of populism
The year 2018 is, in all likelihood, going to be a year of populism, considering the fact that the Bharatiya Janata Party-led Modi government will be gearing up to face the electorate for the Lok Sabha elections in April-May 2019. Also, as many as nine states, including Madhya Pradesh, Karnataka, Rajasthan, Chattisgarh, Meghalaya, Sikkim, Nagaland, Tripura and Mizoram would be holding assembly polls between March 2018 and May 2019. Hence, it is going to be a challenging task for the Modi government to keep the electorate of the country in good mood to be able to retain power at the Centre and BJP-ruled states and capture power in states ruled by the opposition parties.
The imperative of winning the Lok Sabha and assembly elections would force the Modi government to adopt populist policies that would address the issues of the vast swathe of the population. The most crucial of these issues are the issues relating to the agriculture sector. The farmers are facing a double whammy of draught or erratic monsoons causing loss to the crops and unremunerative prices of agriculture produce rendering agriculture an unviable occupation. The Modi government is expected to address these issues on a priority basis in the upcoming Union budget and, thereafter, vigorous implementation of the budget proposals. The budget is expected to be pro-farmer and, in general, pro-agriculture sector so as to provide the much-needed boost to the sagging rural economy.
In view of the expected rural focus of the government in 2018, companies that are involved in agriculture produce processing, agriculture equipment and other agri-related businesses are expected to receive a boost and would be good bets from an investment perspective. Also, FMCG companies that have rural focus and have wide distribution network in rural areas are also expected to benefit.The government’s increased focus on housing and rural infrastructure would benefit cement, construction and telecom companies. The companies that are involved in transmission and distribution of electricity and also those companies involved in manufacturing of electrical products are likely to benefit. Besides, companies manufacturing consumer electronics goods and auto companies manufacturing two-wheelers and mid-sized and compact four-wheelers would reap the benefits of rising income and consumption levels in the rural areas.
The second area that the Modi government is expected to address is the economic slowdown due to the after-effects of demonetisation and roll-out of GST. The government will likely provide incentives to the industrial sector to boost production and capex investments. This would entail reviving the economy by encouraging capex investments and boosting industrial production through incentives to the industrial sector. The banking sector is expected to benefit from the pick-up in credit offtake for capex by the corporate sector for expansion plans.