Series 66 – Rural Recovery Trends in India

We talked last week about the election, its risks and our thought process. Through the week we have been discussing the indications of a rural revival with our partners and investors, and we have also allocated some holdings in the portfolio to this area. We would like to brief you on the trends that we see on the rural recovery in India –

The pandemic initially impacted consumer demand, especially in mass consumption categories like FMCG and entry-level products. However, rural demand is now showing signs of improvement. Key factors driving this recovery include:

1. Agri Income: Improved agricultural yield, higher minimum support prices (MSP), and reduced input costs contribute to increased farm income, supporting rural spending.
2. Non-Farm Income: Monitoring MGNREGA job demand is crucial, as it reflects non-farm income. The government’s free food scheme has affected MGNREGA demand, but higher demand could boost discretionary spending.
3. Government Spending: The government’s allocation of Rs 10 trillion for rural and agri segments (compared to Rs 9.8 trillion in FY24) and social benefit schemes like PMAY and Krishi Sinchai Yojna will impact rural income.
4. Sector Strength: Two-wheeler sales (50% from rural India) and plastic pipe companies catering to agri segments have shown growth.
5. Key Drivers: Monsoons, rural inflation, and government policies will shape rural recovery.

Rural demand plays a crucial role in India’s economic growth, and positive signs indicate sustained recovery . In our portfolio, we have picked up few business with this rural recovery theme, and we will be closely monitoring sector trends and growth. We have detailed about this in our Quarterly portfolio review report. To access the detailed report please click on the link below-

ituscapital.com/articles/portfolio-review-4q-fy24/

We will come back with more interesting information on the portfolio and outlook on the market in the following weeks.