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Rural-focused stocks to gain on the expectation of normal monsoon

Govt measures to boost farm incomes will benefit automobile, consumer, agri-input firms

Ram Prasad Sahu  |  Mumbai 


Companies that get a sizable share of sales from rural could see higher growth on the expectation of a normal monsoon, which has been forecast for this year, as of now.

Two non-bodies, Skymet and Weather Risk Management Services have said they expect rain in the June to September period to be on the positive side of normal. D K Joshi, chief economist at ratings agency CRISIL, says this initial prediction is a positive but the amount apart, the distribution of rain is also important. More clarity on this is expected in June.

A normal monsoon is expected to benefit the overall economy and to support rural consumption. Subrata Ray, senior vice-president at ratings agency ICRA, says the sectors that tend to benefit the most are fast moving consumer goods (FMCG), consumer durables and automotive, besides seeds and agricultural inputs. Rural demand influences overall domestic consumption.

The automotive sector would benefit from a rise in demand after a healthy monsoon. Within it, the two-wheeler and tractor segments (Mahindra & Mahindra, Escorts) generally exhibit higher linkage to monsoon performance, says Ray. Within the passenger vehicle segment, 30 per cent of the demand is contributed by the rural segment; 40 per cent of motorcycle demand is rural. and will both be key beneficiaries.

ALSO READ: Monsoon 2018 forecast: Skymet predicts normal rainfall, relief for farmers

rural stocks

Sources: Exchange/research reports

Also, rural-focused non-banking financial service companies (NBFCs) also stand to benefit, says Gautam Duggad, head of research at He thinks the impact on companies would come with a lag effect. Within the NBFC space, M&M Financial and Bharat Financial should gain from higher rural consumption and spending.Says Gaurav Dua, head of research at Sharekhan, “We could see some upgrades in (stocks of) select companies. But, the impact on index-level aggregate earnings would not be material enough.”

Given the expectation of a normal monsoon and measures to boost farm incomes, most brokerages are bullish on rural-focused stocks. With the various schemes and policies, such as crop insurance, micro irrigation, higher minimum support prices and farm loan waivers, Sanjeev Zarbade, vice-president at Kotak Securities, is positive on stocks that are a play on improving farm productivity, consumption and mechanisation. His preferred picks are Escorts, Insecticides India and

ALSO READ: Fertiliser, agrochemicals stocks in focus on forecast of normal monsoon

Among other FMCG stocks, Emami, and Bajaj Corp, which get a higher chunk of sales from the rural sector, stand to benefit. In the agri input space, while normal monsoons are the single biggest reason for growth, what should help are the recently announced nutrient-based subsidy rates for FY19. Rohan Gupta and Nihal Mahesh Jham of say the move will protect farmers from any spurt in fertiliser prices and augur well for the sector in terms of demand growth. Complex fertiliser companies Coromandel International, and will benefit, they think.

First Published: Fri, April 06 2018. 07:00 IST