India Strategy - Russia Ukraine crisis a boon for rural demand revival - Prabhudas Lilladher

We believe Rural India is all set to kick start a new growth phase in India. Growth rates have been under cloud from past couple of quarters due to slowdown in demand led by waning Rural demand and high inflation (global crude prices and disruption in supply chain). While Russia- Ukraine war has spiked commodity prices, there could be silver lining for India with upsurge in rural sentiments and demand in coming months.

Rural slowdown led by aftermath of 2nd covid wave and not low income: Our channel checks suggest that slowdown in rural demand from last two quarters was not led by poor income, but cautious stance for conserving cash in rural India due to severe impact during 2nd Covid wave. This is as GOI had given free ration to large section of rural population since April 2020 and Agri output and income was unaffected even during covid.

Russia Ukraine war creates a silver lining for Indian Agriculture: Russia Ukraine war has created a silver lining for Indian agriculture by disrupting global Agri commodity chain. Ukraine is amongst largest global exporters of wheat, Sunflower, barley, rapeseed and maize with share of 10%, 47%, 17%, 20% and 14% of global exports. Russia also has strong presence with global exports of 25%, 18% and 14% in Sunflower, wheat and Barley. We note that prices of wheat, Mustard, barley, Cotton and Soybean are up by 14%, 30%, 76%, 61% and 36%. We believe Rabi crops like wheat will give an incremental profit of Rs302bn and major crops ~Rs578bn, an increase of 32% YoY.

Normal monsoons could lift sentiments, turnaround rural demand: 2021 had seen 3rd consecutive normal monsoon in India which boosted the crop output and farm income levels. Skymet has predicted 96-104% of LPA of monsoons in 2022 which will boost rural sentiments in coming months. We believe harvesting of Rabi crop amidst firm Agri commodity prices and timely onset of monsoons will revive rural demand in coming months.

Source : Equity Bulls

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PrabhudasLilladher IndiaStrategyReport Russia Ukraine Crisis RuralIndia