Auto, Farm Stocks Rally as Met Pre­dic­tion Fu­els Hopes

The Economic Times - - Companies - Sanam Mir­chan­dani & Biswa­jit Baruah

Mum­bai: Shares of au­to­mo­bile man­u­fac­tur­ers and agri­cul­tur­ere­lated firms, whose for­tunes are partly tied to the ru­ral econ­omy, such as Hero Mo­toCorp, Es­cor ts, M&M Fi­nan­cial, Coro­man­del In­ter­na­tional and oth­ers ral­lied up to 10% on Tues­day af­ter Skymet forecast that this year’s mon­soon will be above av­er­age, snap­ping two back-to-back years of drought which af­fected farm out­put and farm­ers’ in­come. The In­dia Me­te­o­ro­log­i­cal De­part­ment (IMD) which re­leased its forecast af­ter Tues­day’s stock mar­ket close also said that the rain­fall will be above av­er­age this year, with weather con­di­tions in­di­cat­ing El Nino grad­u­ally fad­ing, sig­ni­fy­ing good rains. An­a­lysts said stocks may ex­tend their gains if cor­po­rate earn­ings of the re­spec­tive com­pa­nies meet street ex­pec­ta­tions. “A nor­mal mon­soon will give boost to ru­ral in­come and con­sump­tion which have been lag­ging for the last two years. The Bud­get had also an­nounced lot of ru­ral-fo­cused ex­pen­di­ture and in­vest­ment schemes, hence there will be a mul­ti­plier ef­fect on the ru­ral econ­omy,” said Kunj Bansal, chief in­vest­ment of fi­cer-equity at Cen­trum Wealth Man­age­ment. Shares of com­pa­nies which are linked with the ru­ral econ­omy such as Tata Chem­i­cals has shed 18% over the past one year, Coro­man­del In­ter­na­tional 25%, Ral­lis In­dia 19%, and Jain Ir­ri­ga­tion Sys­tems 11% -- all of them have un­der­per­formed the ET Ru­ral In­dex that has de­clined 9.5% in the same pe­riod. “The year that sees nor­mal mon­soon af­ter a de­fi­cient one, records shar per agri-GDP growth of around 8.5%. About 58% of ru­ral house­holds are en­gaged in agri­cul­ture, thus an agrar­ian re­cov­ery may drive ru­ral growth in FY17,” said Anindya Bhowmik, strate g i s t a t Phi l l i p Capi t a l . “Shares of Hero Mo­toCorp, Es­corts, M&M Fi­nan­cial and Coro­man­del stand out as ma­jor ben­e­fi­cia­ries.”

“A good mon­soon will pro­vide respite to the ru­ral sec­tor, but will still not be suf­fi­cient to im­prove the fi­nan­cial con­di­tion. The ru­ral sec­tor re­cov­ery will de­pend on what gov­ern­ment does in ter ms of pol­icy an­nounce­ments,” said Dhanan­jay Sinha, head of res e a rch at Emkay Gl o b a l Fi­nan­cial Ser­vices. “In­vestors can look at com­pa­nies such as D e e p a k Fe r t i l i s e r s a n d Dhanuka.”

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