Rohit Joshi/Zee Research Group
New Delhi: What is common today between Parachute, Boroplus, Navratna, Dabur Red, Splendor, Lifebuoy, Dove, Ponds etc? All these brands simply love the sight of rain drops, courtesy the monsoon that hit Kerala on June 5.
The monsoon arrival has brought about the rare cheer at India Inc in general, and more so for companies that traditionally thrive on rural economy. While the India Meteorological Department (IMD) forecast that monsoon would be normal this year, the little delay in the onset of the rains had caused sudden concern. The monsoon was earlier scheduled to hit Kerala on June 1 this year.
Agriculture’s share of the national income or GDP has steeply climbed down over the years to a mere 14 percent now but even now around 60 to 70 percent of the total population is still dependent on this sector. A good monsoon, therefore, means higher income for the people reliant on agriculture leading inevitably to higher consumption of business.
FMCG, Automobiles, Fertilisers, Telecom are amongst the prominent sectors which get impacted either way by the quantum of monsoon each year. Companies in these sectors are bullish given the monsoon onset in view of the resultant rural economic activity.
Approximately 40 -45 percent of the FMCG demand arises from the rural sector, and talking about the consumption demand in the FMCG sector, P D Narang, Whole Time Director, Dabur, said, “Rural demand will definitely remain intact owing to normal monsoon expectation.” Rural demand has by and large sustained in face of pressure on macro economy fundamentals led by surge in inflation.
But to sustain the momentum in view of monsoon being on time, Narang at Dabur wants the government to shed the inertia.
“India is suffering from policy paralysis as well as lack of supply chain management infrastructure. Government needs to take certain initiatives to improve supply chain in the country in order to reduce the wastage of natural farm output,” he added
As that happens hopefully, the stock market pundits too are cautiously bullish on the monsoon impact on FMCG pack. Ambareesh Baliga, COO, Way2Wealth (Investments Consultancy Firm), said, “Monsoon won’t be the key revenue driver for these companies. However, shares of these (FMCG and other companies dependent on rural consumption) particular companies can show a bounce back as the market is oversold.”
“Good monsoon would definitely boost up the Agri GDP but its impact on the overall GDP is the key thing to watch out owing to less contribution of agriculture,” he averred.
Laveesh Bhandari, head, Indicus Analytics, an economic research consultancy, argued, “Good monsoon ensures that economy runs smoothly even though agriculture formed 14 percent of India’s GDP.”
This view found all round endorsement. A K Prabhakar, Senior vice president, equity research, Anand Rathi Financial Services, said, “Good Monsoon normally benefits FMCG and Fertilizer stocks. However, until the monsoon rains hit the financial capital, Mumbai, the stock market would watch it very closely.”
“Emami, HUL, Jyothy Lab, ITC, Rallis, GSFC, Coromandel International, are few stocks which will move based on normal monsoon, and investors can accumulate these stocks at the current levels. Tractor stocks like M&M, Escorts are also likely to see buying interest after a month of good Monsoon data,” added Prabhakar.