Top 6 Monsoon Stocks to Watch

According to media reports, the monsoon in Mumbai is likely to arrive around June 10. The Indian Meteorological Department (IMD) has yet to announce the exact date of the monsoon’s arrival in India. However, the entry of the southwest monsoon in Kerala on May 31 will likely ensure a timely onset of the rainy season in Mumbai. The monsoon rains are expected to begin in the metro city from June 10, according to IMD.

The near-normal monsoon onset in Kerala and the absence of anticipated cyclones over the Arabian Sea or the Bay of Bengal are creating a favourable situation for a timely beginning of monsoon showers in Mumbai. While the monsoon normally arrives in Mumbai on June 11, last year’s rains were delayed by two weeks due to unfavourable weather conditions like Cyclone Biparjoy. Despite this, pre-monsoon showers are expected to bring relief from the scorching summer.

Impact on FMCG and Rural Demand

A good monsoon season is expected to boost the stock market, particularly for firms that earn a significant portion of their revenues from rural areas. Stocks of motorcycle manufacturers, farm equipment makers, and producers of fast-moving consumer goods (FMCG) have rallied following forecasts of timely and above-normal monsoon rains in 2024. This comes after extreme and unseasonal heat in the past two years adversely affected Indian agriculture.

The Nifty FMCG Index has risen by 2.22% so far in May, outperforming the benchmark NSE Nifty 50 Index by more than 65 basis points. This marks a turnaround after six months of underperformance. The market is anticipating a bounce back in rural demand from a good monsoon. If the predictions of an above-average monsoon this year materialise, it will enhance agricultural output and support rural income, aiding the central bank’s efforts to curb food price inflation.

Corporate Earnings and Market Sentiment

Hindustan Unilever Ltd, seen as a bellwether for consumer appetite in India, has indicated that it expects demand to gradually improve. Rival Dabur India Ltd echoed this sentiment, while motorcycle maker Hero MotoCorp Ltd reported that most of its new vehicle inquiries now come from rural areas.

Broadly, FMCG companies registered a 7.6% year-on-year sales growth in rural areas in the quarter ended March, outpacing urban growth for the first time in three years. However, there are questions about the momentum and breadth of the rural sector’s demand recovery, given the low base for earnings comparison and the impact of price cuts on volumes.

In April, sales of motorcycles and scooters in India rose by 33% year-on-year, according to data from the Federation of Automobile Dealers Associations.

Shares of Mahindra & Mahindra Ltd, which manufactures farm equipment such as tractors, have increased by about 19.6% this month, making it the top performer among Indian automakers. The stock surged by 6% following better-than-expected fourth-quarter earnings, driven by expectations of improved tractor sales ahead, contingent on a normal monsoon. Similarly, Hero MotoCorp’s shares have risen by 12.66% so far this month.

A sharp drop in machinery imports in the first quarter of 2024, hinted at a slowdown in spending on new industrial equipment. This aligns with the observation that valuations of consumer goods companies are now similar to those of capital expenditure-driven firms. This convergence suggests that investors might be moving their focus towards consumer-oriented sectors in anticipation of a monsoon-driven rise in spending.

Key Stocks to Watch

The following table summarizes key stocks to watch amid the monsoon, including their current market prices and market caps as of May 26, 2024:

Conclusion

The anticipated timely and abundant monsoon arrival is crucial for several sectors in India, particularly those reliant on rural demand and agricultural activity. The FMCG sector stands to benefit significantly, with improved rural income potentially accelerating its recovery. The automotive and farm equipment sectors are also expected to see a boost in demand, with companies like Hero MotoCorp and Mahindra & Mahindra poised for growth.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.