Friday, 27 November 2015

Best Stocks and Sectors to Invest From 7th Pay Panel Recommendations

Posted by MyInvestmentsPub
Recently the Seventh Central Pay Commission has recommended a 23.55% increase in the salaries for all Central Government Employees and Pensioners. This will impact nearly 1 crore employees and pensioners which could result in a good boost for Consumer market. This will certainly a good news for all the Central Government employees as well as pensioners. House rent allowances are also increasing by 10% to 30%. These recommendations would be implemented by 1st Jan 2016. These proceedings would boost some consumer discretionary stocks and sectors in the coming days. We will see what are the stocks and sectors would benefit from the impact of 7th Pay Panel recommendations.

What are the 7th Pay Panel Recommendations:

  1. The government constitutes the Pay Commission almost every 10 years to revise the pay scale of its employees and often these are adopted by states after some modifications.
  2. The Sixth Pay Commission was implemented with effect from January 1, 2006, the fifth from January 1, 1996 and the fourth from January 1, 1986.
  3. The Seventh Central Pay Commission has recommended a 23.55% increase in the pay and pensions of nearly 47 lakh government employees and 52 lakh retirees.
  4. These recommendations will be applicable from January 1, 2016. 
  5. There will be 5 to 6% performance-based increment every year and those who are under-performing could retire by 55 years of age or after 30 years of service.
  6. The minimum pay for government workers be set at Rs 18,000 per month, an increase of 14.33%. Maximum pay in the apex scale, drawn by secretaries, has been fixed at Rs 2.25 lakh per month and that for the cabinet secretary at Rs 2.5 lakh and others at the same pay level. 
  7. House Rent Allowance could also be hiked by 10% to 30%.
  8. The gratuity ceiling has been doubled to Rs 20 lakh.
  9. It has recommended introduction of performance-related pay for all categories of central government employees and favors the subsuming of existing bonus schemes. 
  10. Nearly one-third of India's middle class is employed by the government and as the 7th Pay Commission comes through, there will be an improvement in discretionary spending.

Sectors and Stocks Benefiting from the 7th Pay Panel Recommendations:

1. Automobile Sector:

The 7th Pay Commission to double subsidized loans for vehicles to Rs 3.60 lakh. Almost 35% of middle class is getting 30% to 40% hike in their salaries. These factors would definitely favoring the auto sector and will see a positive trends in the coming days. Most of these employees are located in the towns and can expect demand for bykes and small cars. The lower fuel prices are also adding fuel to this sector.

Favorable Stocks in Automobile Sector: Hero Corp, Maruti Suzuki,Bajaj Auto, Mahindra Auto

2. Real Estate Sector:

The 7th Pay Commission also recommended to double subsidized housing loans to Rs 15 lakh for the central Government employees. This will definitely push up the demand for Real Estate and Housing sector. Already central Government has announced the schemes like 'House for All' and '100 Smart Cities' which making the Real Estate Sector a favorable sector in the coming days. Adding to this, the salary increases would give the Real Estate Sector further boost.
Favorable Stocks in Real Estate Sector: Godrej Properties, Oberoi Reality, Ashiana Housing, Sobha Ltd

3. FMCG Sector:

Nearly 1/3 of India's middle class will be benefiting by 7th Pay Panel recommendations and will result in improvement of purchasing power. No doubt, the FMCG sector would be given a great boost because of the consumption demand and GDP growth.
Favorable Stocks in FMCG Sector: Godrej Consumer Products, Asian Paints, Jubilant Foodworks, Bata, Mirza International, Kajaria Ceramics, Dabur India

4. Gold:

Gold is a conventional investment for Indians. It is also a best hedging and emotional investment options. Many Indians have the habit of purchasing Gold or Gold ornaments if they have surplus amount. Since the pay hikes boost the disposable income of government employees, this situation would definitely attract them towards Gold investment. Also, the stable and lower Gold prices will attract them for sure. Hence, I am expecting some movement in Gold prices in the medium to long term. However, Gold prices are mostly impacted by International factor.


Based on my analysis, I am suggesting the above sectors and stocks which are going to benefit from 7th Pay Commission recommendations. Undoubtedly the 7th Pay Commission recommendations will help to kick-start the domestic economy and increase the consumption demand. However, some analysts are pointing that these salary hikes will also result in stoking inflation and fiscal pressures.


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