With normal monsoon in sight, these 4 sectors can shower gains on D-St investors

For the current year, the Indian Meteorological Department or IMD has predicted a normal southwest monsoon. The June to September period remains critical as the country receives 75% of the rainfall in this period.

However, risks of El-Nino conditions are on cards this time, and therefore, some uncertainty over IMD predictions coming true remains.

A study on market correlation with the monsoon by Stoxbox showed that ironically, in the last 10 years, during 7 instances when the actual rainfall was “below normal”, the market gave strong returns 6 times.

On the contrary, an “above normal” rainfall in the remaining three instances gave positive returns only one time.

This clearly shows that the market does not react in a linear manner to the outcome of the monsoon, but it still remains a key factor to watch for investors.

ETMarkets.com

Sectors to Play
Given that monsoon rains have a direct impact on the rural population, consumption as a theme is always in play.

“Consumption-based businesses such as staples, consumer durables, commercial vehicles, and agriculture are likely to perform well in anticipation of a normal monsoon and a stable long-term outlook,” said Vinod Nair, head of research, Geojit Financial Services.

Consumer Staples
Rural markets make for 40-45% of sales for consumer staple companies. Therefore, a good monsoon improves spending prospects and boosts volume growth outlook.

In the last 1 year, the skyrocketing inflation severely affected rural consumption, but it started showing signs of recovery in the last quarter. Analysts are pinning hope for a further recovery, which hinges upon monsoon.

“The consumption theme could make a comeback in the next few quarters on the back of expected rural recovery and stability in urban consumption trends. However, one should keep an eye on the monsoon trends to assess rural situations,” said Harsha Upadhyaya, president and chief investment officer – Equity, Kotak Mahindra AMC.

For analysts, Hindustan Unilever, Britannia Industries, ITC, and Nestle India are among the top bets in the FMCG sector.

Automobiles
Good monsoon rains can spur discretionary spending among the rural population and boost sales of vehicles, particularly two-wheelers. Therefore, companies will closely track the monsoon trend to gauge the potential demand.

Similarly, good monsoon rains would push demand for tractors and other farm machinery.

Therefore, analysts are betting on Mahindra & Mahindra, given its leadership position in the tractor segment.

Besides consumer staples, consumer durables, automobiles, agro-chemical, fertilisers, and banks are the sectors that are likely to attract investor interest if monsoon rains are as per

IMD projections.

Banks/NBFCs
The stellar earnings performance of banks and non-bank financial companies in FY23 have already portrayed a strong outlook for growth in FY24. However, a better than expected monsoon rainfall could spur rural lending and give a further fillip to credit growth.

A majority of analysts remain bullish on the financial sector and recommend buy-on-dips strategy in this space.

Fertilisers/Agro Chemicals
Shares of fertiliser and agrochemical companies are likely to find favour as normal or above normal monsoon rains will boost demand for fertilizers and agrochemical products.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)