Monsoon Picks - Bring Home Profit this Monsoon

After two consecutive years of low rainfall in India, IMD and SKYMET came in with announcements which bring a wave of relief and happiness for the country. Confirmed by both, the Indian Meteorological Department and the leading forecaster SKYMET, the monsoon this year will bring 105% of the long term average rainfall. The Investors cheered post the announcement where NIFTY Index rallied from 7517 to 7915, 400 points in 4 trading sessions. 

Over 58 per cent of the rural households depend on agriculture as their principal means of livelihood. Agriculture, along with fisheries and forestry, is one of the largest contributors to the Gross Domestic Product (GDP). As per estimates by the Central Statistics Office (CSO), the share of agriculture and allied sectors (including agriculture, livestock, forestry and fishery) was 16.1 per cent of the Gross Value Added (GVA) during 2014–15 at 2011–12 prices. An above average monsoon will allow the agriculture sector to take a boost as a result directly increasing the purchasing power of the 58% rural population. Therefore, as an Investor, we should build our portfolio that includes the sectors directly benefiting from the increased rural income.

Stocks to watch out:

A. Tractor manufacturers: With an above average monsoon the farmers would cheer with a good produce for the year. The companies manufacturing tractors have their 100% revenue coming from the rural areas. The stocks to keep an eye on would be:

1. Mahindra and Mahindra Ltd.

2. Escorts Ltd.

3. Force Motors Ltd.

B. Two Wheeler manufacturers: Rural India accounts for more than 50% revenue for the two wheeler manufacturers. The two wheeler sector has suffered a decline in the last fiscal on account of poor demand. Above average monsoons will definitely help boost the demand for the two wheelers in the rural India hence giving a sales and revenue boost to them. Demand for mopeds mainly comes from quasi-commercial use by farmers, small businessmen and shopkeepers in the rural and semi-urban areas. The stocks to keep a watch on would be:

1. Hero Moto corp Ltd.

2. TVS Motor company Ltd.

3. Bajaj Auto Ltd.

C. NBFCs and Micro Financers:  The good monsoon is expected to bring an upbeat in the rural income resulting in an increased demand. Now to finance these demands the NBFCs and the Micro financers come into play. M&M Financial, Bajaj Finance, SKS Microfinance, Manappuram Finance and Shriram Transport Finance being the top contenders. Taking into consideration the management, past performance and the fundamentals M&M Financial would be our top bet along with Bajaj Finance and SKS Microfinance.

1. M&M Financial

2. Bajaj Finance

3. SKS Microfinance

4. Shriram Transport Finance

D. Agri Companies: It goes without being said that the agri companies would be the first and the highest beneficiaries of a good monsoon. Companies benefiting would be the pesticides and insecticides providers along with agriculture service providers. The top investment ideas would be:

1. PI Industries

2. Excel Crop

The Table below gives the brief description about the suggested stocks stating the last week’s movement and the immediate target as per Dynamiclevels.com. Post monsoon announcement by the IMD, the stocks have already risen from 2% to 10% in the last week and we still have the decent returns to be captured.

The time and the rainfall distribution are of utmost importance. Any delay or uneven rains would hamper the monsoon growth story. The valuations of these companies have already been discounted as clear from the stock prices which have jumped already. However, a timely and a well spread monsoon will go a long way in helping the above portfolio reap good returns over a 3-6 months horizon.