Macquarie, Citigroup bet on rural stocks after Modi's slim poll win

The BJP won 72% of the seats from urban areas, while the main opposition party got 89% of their seats from the villages

Consumer companies, automakers and fertiliser producers, stars of India's stock market in recent years, may become even more popular with investors as Prime Minister Narendra Modi sharpens his focus on rural areas after a narrow election victory in his home state.

Analysts from Citigroup Inc. to Credit Suisse Group AG said the Bharatiya Janata Party (BJP), which faces eight state elections in 2018, may take measures to boost farm incomes and upgrade infrastructure in the hinterland to quell discontent over depressed crop prices. "Despite the victories, the BJP is unlikely to interpret these results as business-as-usual," Neelkanth Mishra and Deepali Bhargava, analysts with Credit Suisse wrote in a note Monday.

The BJP retained its hold in Gujarat by winning 99 seats in the 182-member assembly, just seven more than the majority it needed to govern and the party's lowest tally in more than two decades. While it managed to contain voter displeasure over last year's cash ban and the chaotic goods and services tax roll out in July, it lost votes in the state's hinterland.

The BJP won 72 percent of the seats from urban areas, while the main opposition party got 89 percent of their seats from the villages, according to an analysis published by a newspaper.

While the benchmark S&P BSE Sensex gained 0.3 per cent on Tuesday, gauges of consumer-appliances makers, automakers and fast-moving consumer products advanced at least 1.4 per cent. Hindustan Unilever, Maruti Suzuki India, Housing Development Finance and Asian Paints are among the top-performing Sensex stocks in the past three years.

Here are the highlights from analyst and strategist reports:

Citigroup

• "We expect that a rural pivot in policy focus is possible," Surendra Goyal and Vijit Jain, analysts with Citigroup Inc. wrote in a note.
• ACC Ltd., Dabur India, Emami, Hero MotoCorp, Mahindra & Mahindra, Mahindra & Mahindra Financial Services and PI Industries among preferred rural picks

Credit Suisse

• "We doubt if a big fiscal slippage is in the cards, even though the Budget speech may focus on rural India and support to farmers." 
• It expects the government to continue with policies to improve subsidy delivery for farmers, more innovations for better price realisation for farmers and improvement in the crop insurance scheme

Macquarie

• Expects more government focus on rural with measures such as minimum support prices for more crops, buffer stocking for crops below MSP, public investment in agri sector
• Recommend stocks that benefit from rural and infra spending
• Top picks Hindustan Unilever, Hero MotoCorp, NCC, Larsen & Toubro, IndusInd Bank and Titan