Every year, the stock market eagerly awaits news regarding the monsoon forecast. The monsoon is a key indicator that helps analysts predict the future trajectory of agriculture and consumer demand-based stocks.
Read on to learn more about how an above-normal monsoon significantly drives the rural economy and boosts the stocks of companies dependent on rural demand.
What’s Happening?
The upcoming monsoon is expected to bring rainfall at an eight-year high of 106% of the long-period average of 870mm for the four-month period from June 2024 to September 2024.
Monsoon forecasts are essential for policymakers as they impact inflation rates. A normal monsoon is beneficial for most Indian states, allowing for more controlled inflation.
Segments Benefiting from Above Normal Monsoon
The major sectors that benefit from an above-normal monsoon are as follows:
FMCG: The fast-moving consumer goods segment will be the biggest beneficiary of an enhanced monsoon. Growth in FMCG will largely come from rural and semi-urban areas where agriculture and allied activities are primary drivers.
Fertilisers: The increased monsoon will positively impact the fertiliser industry. Farmers will require additional amounts of fertiliser to manage the excess crop production, leading to higher demand across the country.
Farm Equipment: Tractors, seeders, balers, and fertiliser spreaders will also see an uptick in sales. In anticipation of a heavy monsoon and a good harvest, farmers often make advance purchases of these types of equipment, driving sales to significant levels.
Two-Wheelers: Rural areas witness massive sales of two-wheelers in years of higher crop production, as increased rural income gives the populace the ability to purchase more.
PSU Banking Stocks: The rural economy is driven by public sector banks. When the rural economy receives a boost, PSU banks witness an increase in credit uptake. This improves their financials and pushes stock prices higher.
What’s In It for Investors?
Since the announcement of IMD predictions, the Nifty FMCG index has registered a significant increase of 10%, compared to the Nifty Index, which only saw a 3% increase over the same period. Sectors heavily dependent on the rural economy are expected to bounce back after two dull monsoon years and see a sustained rally in anticipation of higher growth.
Top Constituents of the Nifty FMCG Index by Weightage
What’s Next?
The above-average monsoon prediction by IMD is positive news for several sectors like FMCG, automobiles, and agri-processing. With subdued performance in these sectors over the last three quarters, this news has brought significant cheer to these industries, as evident in the recent rally.
With expectations of bumper crop production, robust rural demand can help maintain momentum in GDP growth in the coming quarters. It is an excellent time to invest in the Indian economy for those who are bullish on India over the medium to long term.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The companies mentioned in the article are for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
