Gurmeet Chadha on Cashing in on the Almost Bottom-Up Story of Rural Recovery

Key Takeaways:

1. Rural Economy Stocks: Gurmeet Chadha suggests that the rural economy stocks are expected to pick up with increased rural spending, announcements, and the upcoming festive season.

2. Investment Opportunities: The rural-facing economy offers relatively better valuations and some margin of safety compared to expensive names, particularly in ancillaries of two-wheeler makers, farm equipment, agrochemicals, and consumer goods.

3. Urban Consumption: Chadha highlights the performance and prospects of companies such as ITC and HUL in relation to urban consumption trends, emphasizing the potential impact on their volume growth and valuation.

4. Investment Strategy: He recommends a three-pronged approach, focusing on tractors, two-wheeler makers, and ancillaries of two-wheeler makers as potential investment opportunities in the rural recovery story.

The potential for investment in the rural economy and provides insights from Gurmeet Chadha, the CIO & Managing Partner of Complete Circle Consultants. Chadha emphasizes the potential for rural spending to increase due to the upcoming elections, the rise in DA for government employees and pensioners, and the approaching festive season. He suggests that the rural economy stocks are likely to pick up and provides recommendations for potential investment opportunities.

Investment Opportunities in the Rural Economy

1. Ancillaries of Two-Wheeler Makers: Chadha expresses interest in the ancillaries of two-wheeler makers, particularly mentioning M&M, which trades at about 15-16 times. He notes that the broad trend on SUVs is intact and that farm equipment is a large portion of the business. Additionally, he highlights agrochemicals as a subdued space with potential for growth.

2. ITC and HUL: Chadha mentions that he would be keenly watching the commentary of both ITC and HUL, as they have a better pulse of the rural economy. He notes that HUL has a significant retail presence and expects strong performance from ITC, particularly in their cigarette volume growth and FMCG business.

3. Tractors and Two-Wheeler Makers: Chadha suggests a three-pronged approach, focusing on tractors and two-wheeler makers. He emphasizes the potential for investment in the rural-facing economy due to relatively better valuations and some margin of safety compared to expensive names.

Other Investment Recommendations

CPSE ETF: The article also mentions a recommendation to try and buy the CPSE ETF, along with specific stocks such as Bajaj Auto and FACT on dips, as suggested by Sanjiv Bhasin.

Bajaj Finance: The article briefly discusses Bajaj Finance, highlighting its high multiples and the market’s confidence in its ability to sustain growth. It mentions that the company’s prudent risk underwriting and play on consumption make it a favorable investment, especially with the festive season and a long marriage season ahead.

Conclusion

The article provides valuable insights into potential investment opportunities in the rural economy, including specific sectors and companies that could benefit from increased rural spending. It also touches upon other investment recommendations, offering a comprehensive view of potential opportunities in the current market environment.

FAQ

Q1: Are there any other picks to try and cash in on the rural recovery story?

A1: Gurmeet Chadha suggests a three-pronged approach, focusing on tractors, two-wheeler makers, and ancillaries of two-wheeler makers as potential investment opportunities in the rural recovery story.

Q2: What explains the 2% cut in Bajaj Finance post earnings?

A2: According to Chadha, Bajaj Finance has historically traded at high multiples and continues to do so. The recent QIP reinforced market confidence in the company’s ability to sustain growth, despite concerns after two quarters of slightly soft growth. He emphasizes the company’s prudent risk underwriting and its potential for growth, particularly with the festive season and upcoming marriage season.