IT’S THE WET & WATCH SEASON
EQUITY EFFECT Big firms neutral to monsoon, but rural demand can sway individual firms
MUMBAI: There is more to the summer rains than the romance of pitter- patter. Besides providing relief from a sticky summer, the monsoon is also India’s life-blood.
So, the meteorological department’s forecast of normal summer rains have brought hope not just to farmers and their families. A string of sectors such as consumer durables, personal care products, two-wheelers, cement, fertilisers, tractors and even processed food, which depend on the farmer’s wellbeing to drive their sales, are smiling.
Can the monsoon turn up the stock market mood? Analysts reckon that the rains hold the key to cushioning the fallout of recent US monetary easing on India’s equity markets.
“In our view the domestic equity market can see another 10% up-move by the end of 2013 if the monsoon is normal and the government effectively brings down the current account deficit (CAD),” said G Chokkalingam, executive director, Centrum Wealth Management.
India's CAD, the difference between dollar inflows and outflows, has grown to record 4.8% of GDP in 2012-13, though it has shown signs of tapering during January-March.
When rain-dependent farm output is robust, rural income rises, and therefore spending on almost everything goes up. This creates demand for manufactured goods, which, in turn, helps the economy.
A normal monsoon could thus turn out to be the perfect antidote for an economy hit by a slowdown.
Agriculture, rains and equity markets, like cricket, are all glorious games of timing. Paddy saplings, for instance, first need to be grown in small nurseries for 21 days before being transplanted or laid out on watery fields. Without timely rains, they will over- age. This will hurt the prospects of fertiliser and processed food companies.
"The fast-moving-consumer goods (toothpastes, shampoos, instant noodles etc) and fertiliser sectors would benefit from a good monsoon the most," said VK Vijayakumar, Investment Strategist, Geojit BNP Paribas.
Likewise, about 40% of India's cement demand comes from rural housing. Adequate monsoon, therefore, is critical for steady growth of cement companies. The prediction of a normal monsoon, thus, has raised expectations.
"Normal monsoon will have positive implications for agricultural and related sectors like fertilisers, agri products, farming equipment (tractors)," said Dipen Shah, Head of Private Client Group Research, Kotak Securities.
" Cement companies too would get a boost as farmers would go in for the renovation of houses, post the income from a good monsoon," said Ravi Shenoy, VP Midcaps Research - Motilal Oswal.