Global stock markets are seeing buying interest on the back of investor’s faith that the central bankers over the globe would keep continue to support markets. However recently, investors are worried about the possibility of interest rate hike by the US Federal Reserve because of which investors may pull money from the emerging markets. Coming back to home country, domestic factors like improving confidence among various stakeholders as an outcome of government’s initiatives for reforms, normal monsoon, good double-digit growth in retail loans, etc gives good opportunity to make money by investing in sectors like NBFC’s, auto and auto ancillary & last but not the least fertilisers.
Together with government support to the NBFC like allowing 5 per cent deduction in respect of provision for bad and doubtful debts in the budget to implementation of the Seventh Pay Commission, etc. is expected to stoke demand for affordable housing, 2 wheeler, electronics, etc. which would give good growth in demand for loans for housing, vehicles, consumer durables etc. In fact if one looks at the Reserve Bank of India (RBI) data for “gross bank credit by major sectors” these are the among the few categories in the personal loans that are experiencing close to 20 per cent growth when overall gross bank credit is dwindling around 7 per cent or so.
Auto & Auto Ancillary
This is the sector that too would be key beneficiary of the factors talked above. Rural demand which at the moment is growing at a moderate pace is expected to pick up in second half of the current fiscal on the back of good monsoon and festive season. The auto ancillary industry registered strong financials during Q1FY17. Though the top line registered good single-digit growth, bottom-line speed ahead with higher other income (OI), lower interest cost and steady depreciation charges. The auto-component industry is expected to register growth of 8.5-10 per cent in FY 17 as against 2.8 per cent during FY2016, with some traction in the PV and Motorcycle segments. Over the medium to long term, growth in the auto component industry will be higher than the underlying automotive industry growth, given the increasing localisation by OEMs, higher component content per vehicle and rising exports from India.
With the good progress of monsoon in the month of July and August, the prospects for the sector are now looking even brighter going forward. Normal rains are helping good planting of summer-sown crops such as sugarcane, cotton, rice and lentils. Along with it, an over 25 per cent increase in minimum support price for both food grain and non-food grain crops, adequate availability of neem based urea, cut in prices of key fertilizers like DAP, Muriate of Potash (MOP) and Nitrogen Phosphate and Potash composition (NPK) is good news for farmers and fertilizer industry as farmer will use more non-urea fertiliser.
(The author is DK Aggarwal, chairman and managing director, SMC Investment and Advisors)