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MOSL: Morning India (28/January/20): 1. Automobiles (Rural recovery on anvil; Tractors and PVs better positioned); 2. Results 3QFY20 (A. HDFC, B. Interglobe Aviation, C. Dr Reddy's Labs, D. United Spirits, E.

MOrning India (28/January/20):

Today’s top research idea
Automobiles: Rural recovery on anvil |Tractors and PVs better positioned; BS6 could be hurdle for 2Ws
** Initial signs of rural sector bottoming out emerging, as indicated by return of food inflation, favorable 'terms of trade' for farmers, multi-year high rural spending by the Centre, unusually good water reservoir levels and good start to Rabi season.

** Importance of the rural market has been increasing consistently - especially in the last 2-3 years - when rural market growth was ~2x of urban market. This is reflected in increasing contribution of rural markets to auto volumes (40%/45% of volumes for 2Ws/PVs).

** Tractors are best placed to benefit from the rural recovery due to high correlation with farm economics as well as no BS6 related challenges. ESC offers pure play on tractors.

** MSIL, with 40% of rural contribution, is relatively better positioned to benefit from rural revival with apt product portfolio as well as unparalleled reach.

** In normal course, 2Ws would have benefitted the most from rural recovery. However, 10-15% cost inflation in mainstream 2Ws would dilute benefit of rural recovery.

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Key promoter entities put Godfrey Phillips on the block
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