India is all set for a revolution in farm incomes that will transform our economy. Smart equity investors are already paying attention
06-Dec-2017 •Dhirendra Kumar
Some months ago, I wrote an editorial in Wealth Insight magazine, pointing out the outdated attitudes that many equity investors and analysts have towards agriculture. It's time to change such attitudes because they're harming the returns your investments can get--both now and in the future. A lot more in the future.
In our new, premium, Value Research Stock Advisor service, we have ourselves been surprised that our research process has generated a list of recommended companies that are almost one-third agriculture-related. Not just that, later this week (on 8th December), we are adding yet another recommended company that's essentially an agribusiness.
Most equity investors would be surprised by this. They hardly ever consider agriculture as a dynamic and attention-worthy sector which should be watched carefully for opportunities. In fact, apart from the ritual comment on monsoon data so that they make some annual statements about whether more motorcycles or soaps will be sold in rural India, analysts generally ignore the sector.
Yet, there's evidence that this has to change now. Last year, while addressing a farm rally, the Prime Minister said in February 2016 that it was his dream the government would work towards doubling of farmers' income within five years. This would be cause for revolutionary change not only across rural India, but for every business in the country.
Is this goal realistic? Or should one take it as just one those things that political leaders say in rallies and are then forgotten. Certainly, that's the way it had been in India for most of the years since independence. However, that was then, and this now. With the JDY schemes, demonetisation and GST under his belt, one things is certain--if something that was supposed to happen in the Modi government, it won't be because no serious attempt was made.
Can such growth take place in agriculture? Last year, at a conference I attended, renowned agri-expert Ashok Gulati told us the story of Madhya Pradesh's agricultural growth. Over the last decade, Madhya Pradesh has sustained a real growth rate of 9.6 per cent per annum. Over the last five years, this has risen to 14.5 percent! That's almost exactly a doubling in five years! Unprecedented in Indian history. As he put it, this is another Punjab in the making.
The kind of impact this kind of rural growth has on businesses is amazing. Take tractor sales. A decade ago, in 2007-08, total tractor sales in MP were 22,000 a year. Last year, they were 87,000 a year. That's private sector data of a big ticket purchase that has to represent something real underlying the numbers--and a great indicator for equity investors interested in spotting opportunities.
The details of Madhya Pradesh's story are too long to recount here, but the point is that the dream of high growth in agricultural income can come true. And as Gulati's tractor sales example shows, the downstream impact on businesses that you and I invest in can be huge.
The transition to a modern, prosperous country cannot be made while leaving farm income behind. For too long, the farmer has received little except lip service. A change here can revolutionise everything about India.