Retail Credit Potential, Uptick in Rural Demand and Top Stocks in Action

Wed, 23 May Pre-Open

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On Tuesday, share markets in India opened weak, firmed up and ended the day in the green.

The BSE Sensex closed higher by 35 points to end the day above the 34,600 mark at 34,651. While the broader NSE Nifty ended the day higher by 20 points to end at 10,536.

Among BSE sectoral indices, auto stocks rose the most by 1.7%. This was followed by metal stocks at 1.6%. P C Jeweller and Strides Shasun were among the major gainers.

Top Stocks in Action Today

TTK Prestige is likely to be in focus today after the company reported a 32% decline in net profit for the March 2018 quarter. The company reported 12.3% increase in revenues for the quarter.

Petronet LNG is another stock to watch today after the company reported its highest quarterly profit for the March 2018 quarter on processing higher volume of gas.

The Untapped Retail Loan Potential

Retail credit is in the spotlight. Sluggish loan offtake by India Inc at a time when state-run banks are struggling to resolve corporate bad loan burden has led to a shift in the focus towards the relatively safer retail loans.

Retail loans, aggressively targeted by the private sector banks so far, are now being chased by the troubled public-sector banks also. The competition, no doubt, has intensified. But the good news is that the retail loan market is far from saturation. There is a lot of retail lending potential waiting to be tapped.

As per a report by credit information company, Transunion Cibil, financial institutions and banks have been able to tap only one third of the 220 credit eligible consumers. A whopping 150 million potential consumers, that qualify on the age and income criteria but are financially dormant, present a huge lending opportunity for sustained growth over the next five years.

The latent retail credit demand can be met by lenders through a host of loan products such as credit cards, personal loans and consumer durable loans. Further, Cibil has projected the retail loan market to increase by 14-16 million consumers annually and reach 295 million by 2022. Based on the growth curve of other countries, the credit information company, expects India's household debt to nearly double to Rs 78-94 trillion by 2022.

As retail credit continues to be a major growth driver, financial lenders that can reach out with a judicious mix of products as well as presence, will be the biggest beneficiary in the financial inclusion race.

Has the Rural Economy Turned Around?

Consumer goods companies had reason to rejoice after market research agency, Nielsen, pointed to a strong uptick in rural consumption. For the financial year 2018, consumption in rural India grew by 9.7% and surpassed urban consumption growth by a wide margin of 110 basis points. Backed by two consecutive years of bumper rainfall, rural India's consumption in FY18 grew the fastest in the last five years. Sales of two-wheelers, tractors, cars and other consumer goods reported brisk growth during the year. Resultantly, sales growth of fast moving consumer goods (FMCG) industry reached a three-year high of 13.5% in FY18.

But will the good times in rural India sustain?

There seems to be many headwinds for the rural economy. Firstly, falling or stagnating price of agri produce has led to widespread farm distress and frantic demands for loan waivers. Rural wages have also slowed down. Further, sales volumes are unlikely to get the kind of boost witnessed in FY18 from price cuts by FMCG companies passing on the reduction in GST rate from 28% to 18%.

Therefore, FMCG behemoth Hindustan Unilever is exercising caution. The company wants to wait for a couple of quarters to see if the surge in rural demand is sustainable.

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