With the much-awaited decision on increasing the minimum support price (MSP) for kharif crops finally announced by the government earlier this week, shares of automobile and fast-moving consumer goods (FMCG) companies have got a shot in the arm as rural incomes are expected to get a boost.
The government announced hikes of 4-52% in the MSP for kharif crops. While details on the implementation of the hike are still awaited, it is clearly supportive of rural incomes, brokerage firm CLSA said in a note.
With rural demand picking up, sales of auto products had started picking up and the trend is only expected to strengthen. Consumption-related stocks will be the key beneficiaries of the MSP hike.
The S&P BSE Auto index on Friday closed the session 1.39% higher at 24,702.02 points. Shares of Bajaj Auto and Hero MotoCorp have gained over 5% in the last three trading sessions, while Mahindra & Mahindra (M&M) along with Maruti Suzuki recorded an over 3.5% gain in the last three trading days.
Other gainers to have notched over 2% rises in the three sessions include ITC, Ashok Leyland, Hindustan Unilever and Marico. Since the beginning of the year, M&M shares have surged 23.2%, Hindustan Unilever 22.7%, Nestle India 26.8% and Britannia Industries 33.7%.
After hitting a record intra-day high on Friday, the S&P BSE FMCG index pared initial gains to end at a loss. Although BSE FMCG index ended 0.16% lower at 11,363.56 points, it hit 11,434.15 points, its all-time high, during the day.
Both the auto and FMCG indices have outperformed the benchmark Sensex during the last three days, with the BSE Auto gaining 2.9% and FMCG index rising 1.5%. Sensex gained 0.8% during the same period.
Rural sales, which account for more than half the revenues of consumer companies, were hit over the past few years due to weak wage growth, disruption post demonetisation and introduction of goods and services tax.