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Why Should You Be Betting on Rural Consumption Stocks?


Consumers are important to business and increased consumer spending is an indicator that companies will perform better, which is why you shouldn't ignore the signs the figures are indicating.

CPI (Consumer Price Index) figures released by the Central Statistics Office (CSO) on May 14 indicate that rise has been higher in rural India when compared to the urban segment.

Why Should You Be Betting on Rural Consumption Stocks?

All India general CPI showed 4.67 percent inflation rate in rural segment, while it was 4.42 percent in the urban. The results were higher in the month of March 2018 too.

Inflation rates in percentage, based on CPI as per government records:

Segment April 2018 March 2018 April 2017
Urban 4.42 4.12 3.03
Rural 4.67 4.44 3.02

Additionally, market researcher Nielsen said that rural consumption has risen by 9.7 percent for the year ended March 2018, outpacing 8.6 percent in urban spending. This indicates higher cost of living among the rural population.

Good rainfall in the previous year, the revival from GST imposition and increased government spending have influenced the growth.

With state and Lok Sabha elections approaching, more and more rural centric welfare programs like health care coverage and farm loan waivers can be expected.

What companies to look at?

Consumer-centric businesses are bound to flourish following the growth in spending. When you are looking to make investments, go for companies that make a significant volume of sales in rural areas.

According to Crisil Ltd (the credit rating agency) 40 to 45 percent of sales of FMCG (fast-moving consumer goods) come from the rural segment. In other sectors like automobile, you can look at Mahindra and Mahindra which is the world's largest manufacturer of tractors.

Similarly, you can consider healthcare sector and infrastructure. For example, infrastructure plans will boost steel stocks as steel is an important element in building structures.

Additionally, you can invest in local rural print media, whose sales will rise during the upcoming state elections.

Read more about: cpi consumer spending
Story first published: Tuesday, May 22, 2018, 15:52 [IST]
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