The 8th Pay Commission:
the way it will provide a giant leap to the stock market and sectors likely to gain: The Pay Commission can make a big difference to the stock market as well as to the economy and in fact provides a great impetus to the economic growth functionally. There are a lot of under-pays and some under-pays to a large extent that the Pay Commission can take care of and indeed the under-pays can bring a big change to the stock market as well as economy.
The stock of the Indian market is likely to get a major thrust upon realization of the 8th Pay Commission. Once the pay commission is in place, millions of central government employees together with pensioners will receive salary increment with arrears. This additional earnings will translate into increased expenditure and investments and this will benefit a number of sectors and firms directly and indirectly.
Now, to know which sectors and which companies are likely to benefit by this 8th Pay Anomaly Commission and the reasons behind the same.
1. Automobile Sector
With a rise in salary, a significant number of those working in the government choose to purchase the two-wheelers or small vehicles on their own. The same trend has been noticed on the implementation of the past pay commissions.
The reasons that this will be a good field:
- The increase in the amount of disposable income will motivate individuals to purchase new cars, particularly affordable ones.
Potential beneficiary companies:
- Hero MotoCorp (two-wheelers)
- Maruti Suzuki (small cars)
2. Real Estate Sector
As there is increased HRA received and escalated salaries, there is the capability to buy houses also. Government workers would rather use their unpaid salaries and overtime wages to invest in houses including low cost houses.
The reason why this sector will be rewarded:
- More capacity to buy a home with an improved ability.
Potential beneficiary companies:
- Real estate developers focused on affordable housing projects.
3. Banking Sector
The increase in the salaries and arrears will boost the cash flow of the people resulting into an increase in the deposits as well in banks. This will increase liquidity in the banking sector.
The reasons that will make this sector effective:
- The increase of savings and fixed deposits can be achieved when more people have money in their hands and this will build the financial base of banks.
Potential beneficiary banks:
- State Bank of India (SBI)
- Indian Bank
- Canara Bank
- Axis Bank
- Yes Bank
4. Insurance Sector
The government employees can invest on the insurance plans or assured returns on their backdated salaries and arrears. When an individual is short of money, they tend to want to save on something to ensure their future.
What makes this sector to be beneficial:
- Additional money will cause people to buy more insurance policies.
Potential beneficiary companies:
- HDFC Life
- SBI Life
- Max Financial
- ICICI Prudential
- LIC (Life Insurance Corporation of India)
5. Non-Lending Fintech Sector
Once people get the arrears and higher pay, they will want to invest in something more than the common savings in banks. These new investors will be interested in mutual funds and stock market.
The reasons why this sector will pay off:
- More interest in Stock market and in mutual funds.
Potential beneficiary companies:
- CAMS
- KFin Technologies
- Angel One
- Mutual fund firms such as HDFC Mutual fund and Nippon Mutual fund might also be a beneficiary also.
6. Credit Card Sector
Higher incomes mean that most people will afford to spend more on shopping, travelling and entertainment. This will result in more credit card consumption and spending via credit cards.
This is why this industry will do well:
- The increase in the use of reward programs and credit card use.
Possible company benefiting:
- SBI Cards
7. FMCG Sector (Fast Moving Consumer Goods)
Once the consumers have more purchasing power, there is a tendency they may be shifting towards premium products. There is a potential of an increase in demand in premium FMCG products such as alcoholic drinks.
The following are the reasons why this sector will be of benefit:
- High consumption of the high-end and deluxe goods.
Potential beneficiary companies:
- United Spirits
- United Breweries
8. Consumer Discretionary Sector
Increment in the spending power created by the implementation of pay commission can promote demand in such segments as clothing, grocery, footwear, and travel.
The reason this industry will be advantageous:
- Individuals will make more purchases on lifestyle and comfort products.
Potential beneficiary companies:
- Trent
- DMart
- Bata
- V-Mart
- V2 Retail
- Style Baazar
- Jubilant FoodWorks
9. Consumer Durables Sector
This is likely to result in a rise in demand of products such as electronics, home maintenance appliances and kitchen products. The goods are considered as being a luxury buy when one has an increment in their revenue.
Why it will work to this industry:
- Growth of demand of home appliances and electronic gadgets.
Possible beneficiaries of companies:
- Crompton
- Orient Electric
- Bajaj Electricals
- TTK Prestige
- V-Guard
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Conclusion
The launch of the 8th Pay Commission is not only a good news to the government employees but also to the Indian stock market. It will add money supply to the market and spur consumption in different sectors.
Whether its automobiles or real estate, banks or insurance, consumer durables or FMCG, a number of sectors are likely to gain a lot. Traders are advised to monitor these areas and the firms listed earlier to be able to score a growth at the time when the 8th Pay Commission comes into establishment.
As usual, one can only do his/her research before making any investment, but the overall mood of the whole market is going to be cheered up by this future salary increase.