12 stocks that are likely to benefit the most from a normal monsoon
The monsoon and D-Street have one thing in common -- they both are unpredictable. But what is predictable is how the monsoon will impact certain sectors and stocks.
The Indian economy is heavily dependent on monsoon rain, and a normal and well-distributed monsoon usually results in an uptick in farmers' income, which leads to an increase in the demand for consumer and automotive products in the rural market.
"Monsoon rains are the lifeblood for the Indian economy and are very critical for the farm sector, which accounts for about 15 percent of India's economy. There is a very strong correlation between the monsoon and the performance of the Indian economy along with the stock market,"
DK Aggarwal, Chairman, and MD, SMC Investments and Advisors, told Moneycontrol.
"A good monsoon creates positive reading about the economy among the investors, including foreign institutional investors and a stronger economic outlook would lift the sentiments of the investors, mainly companies selling products in rural areas from the sectors such as FMCG, consumer goods, automobile," he said.
Equally-distributed rain usually gives a fillip to demand for products from rural areas, and results in an increase in rural citizens' purchasing power. It also lifts the groundwater level, which leads to better irrigation. This is positive for all fertiliser and agriculture stocks.
The Indian Meteorological Department (IMD), in its first stage of forecast, sees a 'normal' monsoon this year, likely around 97 percent of the long period average. In 2017, the southwest monsoon was near-normal at 95 percent of the long period average, but patchy.
The India Meteorological Department (IMD), the country' official weather forecaster, in its 08:15 am bulletin, said that monsoon would hit Kerala in the next 24 hours.
"There are Monsoon-like conditions over Kerala and we can say that the annual rainfall season has arrived," said Jatin Singh, CEO of private weather forecaster Skymet.
Monsoon is the lifeblood for India’s farm-dependent $2 trillion economy. As many as a dozen sectors depend on it, either directly or indirectly, experts believe.
Sectors such as agro chemicals, FMCG, automobile, rural-focused non-banking financial services companies (NBFCs) are likely to benefit greatly from a stable monsoon.
"Indian companies derive a significant portion of their earnings from the rural areas of the country. While some companies are directly dealing in the agriculture market like seeds, agrochemicals, fertilizers etc; certain other companies are indirectly benefited from a robust rural economy like FMCG and auto," Deepak Jasani, Head - Retail Research, HDFC Securities, told Moneycontrol.
"A deficient/excess rainfall leading to crop losses result in lower earnings for farmers resulting in lower rural demand and lower sales. Another sector affected due to the health of the rural economy is banks, NBFCs, and micro-finance institutions," he said.
Jasani pointed out that banks, FMCG, and the automobile sector make up more than half the Nifty's weight. So any change in the expectation of earnings of these sectors on the basis of the monsoon rains is positive for these stocks and to the index as a whole.
The southwest monsoon plays a significant role in India's economic progress and more predominantly, in the agriculture sector's progress. This is because it accounts for 70-75 percent of the total rainfall that India gets in a year and is therefore, of high significance in the agricultural calendar.