It looks like everything is going right for India markets with rain gods showering blessings as south-west monsoon arrived in Kerala coast, advancing also into some parts of the Northeast India.
Along with Kerala, monsoon also advanced into some parts of the Northeast like Nagaland, Mizoram, Arunachal Pradesh and Mizoram on Tuesday.
Widespread rainfall in the past 48 hours along with a cloud cover since May 27, formed favourable conditions for the onset of monsoon in the Southern region, said a report.
A better than expected monsoon gets reflected in the balance sheet of companies. It usually results in better earnings for companies in the following quarter. The monsoon is considered normal if rains are between 96-104 percent of the 50-year average rainfall of 89 cms.
The S&P BSE Sensex which has already rallied by about 17 percent so far in the year 2017 could well rally another 4-6 percent if monsoon rains stay on track. A better than expected monsoon will fuel rural demand, boost consumption, and bring down inflation.
A boost in demand would help earnings growth of FMCG, consumer durables, agri inputs, fertiliser and cement companies, suggest experts.
"Monsoon will be a big trigger for markets starting June and if everything goes well, we are looking at an upside of 4-6 percent," A.K.Prabhakar, Head -Research at IDBI Capital told Moneycontrol.
The IMD had predicted the advance onset of monsoon in Kerala this year on May 30, earlier this month. The normal date for the onset of monsoon in the state is June 1.
“A good monsoon is likely to have a better impact on the rural story. The rural cycle is a multi-year one. The recovery story will last longer and we continue to bet on that,” Sandeep Bhatia of Macquarie Research said in an interview with CNBC-TV18.
M&M, as well as M&M Finance, are worth looking at, he added. Bhatia also highlighted the rural recovery story to play on FMCG companies such as Hindustan Unilever, Marico as well as Dabur.
With India's strong macroeconomic fundamentals and expectations of growth accelerating in the economy would continue to attract foreign investment, a normal monsoon will be crucial for companies to deliver on the growth front.
We have collated a list of five stocks from different brokerage which are likely to benefit more monsoon:
M&M: BUY| Target Rs 1,450JM Financial maintains a buy rating on M&M with a 12-month target price of Rs 1450 post Q4 results. During 4QFY17, M&M operational performance was primarily impacted by BS3 vehicles related discounts and conversion cost amounting to Rs1.7Bn.
Going forward, with the expectation of normal monsoon, improvement in farm income (due to healthy Kharif and Rabi output) and government focus on rural infrastructure, FES will continue to witness robust growth during FY18.
With an introduction on new and refreshed models and recovery in rural sales, M&M’s auto volumes would likely pick a pace that augurs well for medium-long term growth. “We believe current valuations at 11x FY19E core earnings capture the near term risk to company's earnings to a large extent,” said the report.
Rico Auto: BUY| Target Rs 65Sharekhan maintains a buy rating on Rico Auto with a target price of Rs 65 post Q4 results. Rico Auto (Rico) has reported a weak performance for Q4FY2017 at the operating level. At Rs274 crore, consolidated revenue grew by 8.5% YoY, driven by a recovery in the standalone operations post demonetisation and an improved performance from the subsidiaries.
Post demonetisation, the outlook for the domestic Two Wheeler (2W) industry has been improving substantially due easing of liquidity situation.
Further, an above-average monsoon forecast by the IMD for a second consecutive year, government’s spending on infrastructure development and the ongoing marriage season are expected to spur demand for 2Ws in FY2018, which is likely to translate into better demand from 2W OEMs.
Tata Chemicals: BUY| Target Rs715ICICI Securities maintains a buy rating on Tata Chemicals with a three-month target price of Rs 715. Tata Chemical, a Tata group enterprise, is on a strong footing primarily tracking successful turnaround witnessed in its overseas businesses, steadily going high-margin domestic soda ash business amid pursuit of existing subsidy linked domestic agri input business (fertilisers).
The company will also be a key beneficiary of a normal to positive monsoon season through its subsidiary i.e. Rallis India, which is present across the agri value chain viz. seeds, plant growth nutrients, agro-chemicals and organic manure.
IMD has forecast rainfall in the upcoming monsoon season 2017 at 96 percent of LPA (normal in nature) with onset date at the Kerala coast being expected on May 30, 2017.
VST Tillers Tractors: BUY| Target Rs 2200ICICI Securities maintains a buy rating on VST Tillers Tractors with a buy rating and a target price of Rs2200. By virtue of being a new serious entrant in the tractor segment, VST witnessed margin pressure in FY17 amid increasing sales & promotion expenses including brand building exercise.
Going forward, the management has guided for tapering of expenses and savings to the tune of 200-300 bps in costs structure. VST has a healthy debt-free balance sheet with surplus cash of Rs190 crore in books as of FY17 and healthy return ratios with RoCE in excess of 20 percent.
Volume growth in the power tiller segment is, however, expected to be tepid given the transition phase of incorporation of DBT scheme in power tiller subsidy regime, but it would also be a key beneficiary of normal to the positive monsoon in Southern and North East India.
Jain Irrigation: BUY| Target Rs 142Edelweiss maintains a buy rating on Jain Irrigations (JISL) with a target price of Rs 142 post Q4 results. JISL reported strong Q4FY17 numbers with sales and EBITDA beating our estimates 5 percent and 18 percent, respectively.
However, due to the higher tax, PAT at 771mn belied our estimate. While Hi-tech Agri Input segment’s 16% YoY revenue spurt was the key factor contributing to overall growth, other segments reported muted growth owing to demonetisation and poor monsoon.
Management is targeting 20-25% top line and EBITDA growth supported by recent acquisition in the US and pick up in the domestic market. “In our view, normal monsoon will boost domestic MIS & piping businesses and rising share of retail sales will also prune working capital,” said the report.
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
Find the best of Al News in one place, specially curated for you every weekend.
Stay on top of the latest tech trends and biggest startup news.
