Even India’s manufacturing Purchasing Managers’ Index or PMI for February declined to 54.5 per cent from 55.3 per cent in January. Though a PMI over 50 indicates an expansion in activity, the rapid spread of coronavirus is casting doubts over its near-term sustainability. For instance, the automobile sector could see a big impact on its supply chain, even as demand remains weak.
This apart, some also believe that the agricultural gross value added (GVA) may not be an accurate reflector of farmers’ incomes, which is key to improve rural demand. “While agricultural production would remain strong in the near future, it does not necessarily indicate good improvement in farmers’ income levels,” says Madan Sabnavis, chief economist at CARE Ratings.
While the expected good Rabi crop would aide farmers, a meaningful increase in their income level demands strong and sustained pricing improvement in agricultural prices, which looks difficult in the current environment. Even if agricultural income remains stable, as Sabnavis believes, it needs to get converted into demand to actually spur overall rural consumption, which looks difficult at least for a few more quarters.
That said, a few others seem hopeful. Dhananjay Sinha, director and head of institutional research at Systematix group says, “The recent few economic indicators show that one part of rural India, i.e. farm, is doing well. Besides good agricultural output and allocation of government’s welfare schemes should improve overall rural consumption hereon.” However, the jury is out on this.
Thus, investors should wait for more data that confirms a recovery in rural growth, which would then augur well for stocks such as fast-moving consumer goods, automobiles, agricultural/rural lenders, among others. For now, investors are recommended to stick to quality stocks.