Positive for food prices, rural incomes and agri businesses.

After the monetary policy, the markets were keenly awaiting the monsoon forecast of the India Meterological Department (IMD) to gauge the impact on food prices and on companies dependent on the agricultural sector.

Also Read   Related Stories News Now - JSW Steel seen posting profit in Jan-March - A V Rajwade: Our exchange rate policy - A fine balancing act - IMF supports India's tightening of monetary policy - IMF supports India's tightening of monetary policy - Calibrated exit continues

Also Read   Related Stories News Now - Markets end lower ahead of May F&O expiry - Parsvnath posts Rs 23 cr loss in Q4 - Educomp net down 57% at Rs 61 cr in Jan-Mar qtr - DLF Q4 net plunges 39% to Rs 211 cr - Provogue Q4 net profit down 71% at Rs 1.81 cr More

A normal monsoon is good news as it helps bring down prices of agricultural commodities and eases cost pressures for companies which use these as feedstock. “It is quite possible that under a normal monsoon, food inflation declines significantly to more than offset the hit from non-food categories,” says economist Rajeev Malik of Macquarie Research.
 

A poor monsoon, on the other hand, pushes up agricultural prices due to dwindling food stocks. Last year’s rainfall deficit saw the country’s foodgrain production dip to 216.85 million tonnes (mt) in 2009-10 as compared to 233.9 mt in 2008-09. This meant agricultural growth declined 0.2 per cent in 2009-10 from 1.6 per cent in 2008-09. Agricultural growth was a robust 4.7 per cent in 2007-08, when the country saw a normal monsoon.

Improved outlook
For India, the monsoon is critical as a large part of the arable land is dependent on rain. Kharif crops, which account for 55-60 per cent of the country’s foodgrain production, are sown in June and July. Adequate rain, in terms of volumes and coverage (area-wise), is critical during this period.

“Historically, it is observed that after a drought year, we have normal monsoon. So, this year, there is fair chance of a better monsoon. While last year, the industry took a hit, the outlook for the current financial year should improve,” says Rahul Mirchandani, executive director, Aries Agro.

Aries Agro, which makes nutrient-based fertilisers that help improve crop yields, is looking at 25 per cent growth in turnover in 2010-11 to Rs 175 crore. “We are expecting strong volume growth in fertilisers this year as compared to single-digit growth registered by the sector last year,” says Sangeeta Tripathi, who tracks the fertiliser sector at Sharekhan.
 

“A normal monsoon means the demand will be higher and the payment cycle will improve, which will be marginally positive for fertiliser companies. We recommend a buy for Chambal Fertilisers and Coromandel International,” says Prakash Gaurav Goel, an analyst at ICICI Securities. Companies like Coromondel Fertilisers generate almost 90 per cent of their revenues from the fertiliser segment. Deepak Fertilisers, which is largely into the chemical business, has a marginal exposure to fertilisers. Tata Chemicals and Chambal Fertilisers are among the most diversified players in this sector but still stand to gain.
 
Agri-inputs
Among other companies, Jain Irrigation, the largest company in the drip irrigation segment, should benefit. This is due to the fact that a normal monsoon will lead to improved demand and working capital cycle, as most of its units are sold on credit. Companies in the tractors segment like Mahindra & Mahindra will also benefit considering that the company’s revenues from the segment are 30-35 per cent of its auto segment revenues.

A normal monsoon will also mean good demand for companies in seed and crop protection segments. Advanta India, Monsanto India, United Phosphorus and Excel Crop Care are the leading companies in these two segments.

New Ipad Application :Business Standard's all new IPad App Click here to download for free Other Stories      - Markets end lower ahead of May F&O expiry - Parsvnath posts Rs 23 cr loss in Q4 - Educomp net down 57% at Rs 61 cr in Jan-Mar qtr - DLF Q4 net plunges 39% to Rs 211 cr - Provogue Q4 net profit down 71% at Rs 1.81 cr

Tags : monetary policy | India Meterological Department | LPA | Rajeev Malik | food inflation | Kharif crops |   Read Business news in  Advertisements -  India's no. 1 Property Site. Click here to know more -  Benefits Upto Rs. 2.36 Lakhs on the Fully Loaded TJet Petrol. -  Journey on, We are by Your Side. Click here to know more -  Help a Child Achieve her. Click to know more -  "Discover The Power of One" -  Benefits Upto Rs. 2.36 Lakhs on the Fully Loaded TJet Petrol. -  Watch The Film Here. Click here to know more.. -  Leader in Passenger Car & Automobile Tyres. Click here -  Learn How One City is Running on FOOD SCRAPS. -  1 billion in saving for Unilever without any tangles. -  A Brand New Server at a Price That Fits Your Budget. Click here -  One Partnership Endless Possibilities. Click here to know more -  Helping doctors detect diseases earlier, saving costs & extending lives. -  36 Lakhs can get you a pool of Luxuries. Click here -  Which is the best plan for your daughter -  Check out the TRUE COLOURS of your Stocks, Now for FREE! -  One of the leading business schools in the world.Know More -  2 Lac Apartments, 1 Lac House / Plots. Click here