5 Best Rural-Focused Stocks to Buy on Good Monsoon Expectations

Continuing the good rain fall from the last 3 years, this year also there is a good news from Indian Meteorological Department (IMD) saying that the monsoons this year, 2022-23 will be ‘above normal’ and there would be fair distribution across the country. The stock market usually reacts positively to 'normal or above average' monsoons as it leads to increased farm production and increased demand from rural areas. But last 2 years Covid-19 pandemic has affected the economic activities at the global as well as domestic level. Although, the Covid19 cases are still there in India but at the same time, the recovery rate is also increasing because of successful vaccination programs. Thus, this gives hope that the economy will normalize sooner or later. The monsoon has lot of significance as it not only improves agricultural demand but also results in employment generation, push auto sales and demand for everything like cement and steel. Thus, from the equity market perspective, tractor, two-wheeler, auto/rural financing, agrochemical and select FMCG companies will benefit from the good monsoon.


Why Monsoons are Very Important to India and Economy?

  1. Two-thirds of Indians depend on farm income and over 40% of our cropped area does not have any form of irrigation other than the rains.

  2. Half of India’s farm output comes from summer crops dependent on the monsoon. For good farm output, the rains have to be not just robust but also evenly spread across states.

  3. The monsoon also replenishes 81 nationally-monitored water reservoirs vital for drinking, power and irrigation.

  4. Good monsoons will result in robust farm output and this will increase the purchasing power of Rural India. This will create demand for almost everything which in turn helps the general economy.

  5. Normal rains act as a strong check on food inflation by increasing food output and availability and this will reduce the food inflation in the country which intern creates the room for RBI to reduce the key interest rates.

  6. A good monsoon raises rural incomes, which helps the economy by fueling demand for manufactured items.

Stocks to Buy for Long Term on Good Monsoon Predictions:


India's economy is mainly depend on monsoons. Good monsoon --> Prosperous farmers --> Increase in purchasing power of farmers. It means good monsoons result in purchasing power of the Rural India and people from villages will buy products that creates demand for certain companies and ultimately increases in index of overall market.


1. PI Industries:

P I is a leading Agri Input and Custom Synthesis & Manufacturing company in India. P I Industries manufactures pesticides and insecticides. Piyush Singhal is the Chairman and Salil Singhal is the Managing Director of the company. The manufacturing unit is located in Udaipur, Rajasthan. The company is also engaged in other segments such as minerals, metering and allied products. A good monsoon is beneficial for companies that make pesticides and insecticides, a crucial farm input. A huge demand for pesticides and insecticides in the coming raining season will make PI Industries is a very good bet in this sector.

2. Hero Motocorp:

Good monsoons will result surplus cash in the hands of rural consumer because of high farm output and this will boost the sales of automobiles. The first impact would be on 2-wheeler segment and the Hero Motocorp is the first choice for Rural consumers. Because of the lower fuel rates are also an added advantage to Hero Motocorp. If the monsoons reach the expectations, then there will be a possibility of double-digit growth in this script.


3. UPL Ltd:

United Phosphorus Limited (UPL) is engaged in the business of manufacturing and sale of crop protection products, intermediates, specialty chemicals and other industrial chemicals. The Company offers a range of products including insecticides, fungicides, herbicides, fumigants and has established a broad product line that caters to the crop protection needs of a plant during all stages of its growth. Strong financial position, dominant Market position and expected huge demand for the products because of the good monsoon predictions would lead to benefit the script value in the coming days.

4. Swaraj Engines:

Swaraj Engines is the ideal sort of stock for even a conservative investor. It has management pedigree with impeccable credentials (Mahindra-Kirloskar), high RoE (24%), debt-free and high dividend yield (4%). Good monsoons would result in huge demand for tractors and Swaraj Engines will be among the first choice to take off. Swaraj Tractors used to have an 8 percent market share in FY08, which has gone up to 16 percent now. So it has been one of the biggest market share gainers with good monsoons. A very good bet for long term investment.

5. HUL:

Rain and fortunes of the FMCG sector and closely related. Because of the bad monsoons that prevailing for the last 2 years, the FMCG sector is showing negative results and is available at attractive rates. If any positive push helps this sector to double-digit growth. As the IMD expecting above normal rainfall this year, the FMCG would see a growth in the sales. Hindustan Unilever (HUL) is my top choice in this sector as HUL will rose 15% - 20% growth in sales in the coming good monsoon years.

Conclusion:


Apart from the good monsoons, the central Government is actively focusing on reviving the rural economy. The government has undertaken many initiatives in order to improve consumption, infrastructure and job opportunities in the rural parts of India. All these factors would create demand for the above products that would help the Rural India to increase their farm output which will increase the sales of these Rural focused companies products. A good monsoon is a key factor to revive Indian Economy.

Disclaimer


This data is for Academic purpose only. The data published on this post is just my opinion based on my own research and analysis and is provided as a general market commentary. As it does not take into account of your personal circumstances, please do not invest based solely on this information. By Viewing any material or using the information within this post you agree that this is general education material and you will not hold any person or entity responsible for loss or damages resulting from the content or general information provided here.

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