Monsoon yet to arrive, but rural-linked stocks reap rich harvest

With the India Meteorological Department (IMD) projecting a normal monsoon this year, rural economy linked stocks have showered riches on investors.

Select agri input makers, consumer FMCG and appliance companies, and rural focused financiers have given up to 30% returns in just a week after IMD said the country is likely to get 97% of the 89 cm it normally gets between June and September, compared to 95% last year. A good monsoon augurs well for the rural economy and sales, so smart investors are already accumulating such stocks in hopes of bigger gains, experts said.

While a monsoon linked broad-based rally is yet to kick in, there are already encouraging signs of pockets of growth. While some fund managers are waiting to see the rains in the sowing months of July-August, IMD and Skymet's respective predictions have lifted hopes for stocks markets, which have been yearning for a positive trigger after languishing under the weight of LTCG tax, global cues and below-the-mark corporate earnings.

"Normal monsoon for a third successive year are likely to result in an increase in foodgrain production with a consequent rise in farm income and a boost to the rural economy. Monsoon has immense significance domestically, since more than 50% of our population, directly or indirectly, is dependent on it for livelihood while agriculture & allied activities constitute an estimated 15% of the national GDP, thereby giving a great fillip to economic activity and overall positive sentiment. It is positive for all agri input and rural demand focused companies," said brokerage ICICI Securities.

Agri input firms that are associated with pesticides and insecticides have been lapped up. Kilpest is up 14% in a week, followed by Bharat Rasayan (up 11.5%), Super Crop Safe (up 7.7%), Excel Crop Care (up 7.5%), and Bayer CropScience (up 5.5%). Fertilizer makers like SPIC (up 8.7%), JK Agri Genetic (up 6.9%), GNFC (up 7.7%), and Chambal Fert. (7.85%) have moved up since IMD's monsoon prediction. Pump-related firms like KSB Pumps has already jumped 10% in a week. Consumer goods (electronic) stocks like Sharp India (up 27%), and IND Renewable (15%) have minted quick money too.

Domestic appliance makers like Bajaj Electric (up 4.4%) have made a small start, but analysts expect gains to widen if the monsoon forecast plays out as predicted. "The IMD has forecasted that India is likely to receive normal monsoon in 2018 which will further improve the market sentiments next week," said Anita Gandhi, whole time director at Arihant Capital Markets.

Consumption linked stocks in segments like leather, personal care, FMCG and automobiles have scripted neat gains for investors. In the leather space, Bata India stock's one week 4% gain has been eclipsed by nearly 7% in Khadim India, and over 12% in Sreeleathers. Rural economy focused personal care companies like HUL, Dabur, and Godrej Consumer (all up 4%) are also beginning to get some attention.

Shares of some small and medium-sized apparel companies, one of the direct beneficiaries of higher rural income, have experienced an uptick. For instance, Anshus Clothing is up 24% in a week, followed by 10% appreciation in Pearl Global, nearly 8% rise in Monte Carlo and 6% jump in Gokaldas Exports. "Consecutive good monsoon will be a positive for the farm sector from a volume perspective with some bearing on the overall rural demand if prices do not move too low," said an economist of an institutional brokerage.

In the auto segment, M&M stock's 2% one-week gain isn't really shaking up things, but shares of Force Motors are up 7.7% while SML Isuzu has gained 7.1%. Tractor-linked stocks like HMT (6.4%) and VST Tillers (3.7%) have witnessed some gains even as Escorts' saw a mere 1.5% rise. Two-wheeler firms such as Bajaj Auto, TVS Motor, and Hero MotoCorp haven't made impressive gains yet, which is normal because analysts say these firms make big gains only after rural income spurt is confirmed post a good monsoon.

Select housing finance stocks have seen buoyancy. In about a week, shares of Dewan Housing (up 7%), GRUH Finance (up 7.1%) and Reliance Home Finance (up 4.5%) have seen extra demand as investors expect the housing theme to click in the event of a good monsoon.