The early arrival of the southwest monsoon -- about 10 to 15 days ahead of schedule -- could bring optimism for some sectors and stocks especially those linked with agriculture and broader rural economy, say experts.
While one still needs to watch out for data related to cumulative rainfall and regional distribution, the early onset is widely viewed as a macroeconomic positive, they add.
Stocks like ITC, Hindustan Unilever, Marico, Dabur, Godrej Consumer, Mahindra & Mahindra, Hero MotoCorp, TVS Motor, Escorts Kubota, VST Tillers, Dhanuka Agritech, UPL, PI Industries, Rallis India, and Chambal Fertilisers could be in the limelight.
“This is a highly positive development for the Indian economy and domestic markets. It is particularly beneficial for agriculture and the broader rural economy, which rely heavily on timely rainfall,” said Narendra Solanki, Head-Equity Research (Fundamental) at Anand Rathi Shares & Stock Brokers.
“Alongside this, we are also seeing inflation steadily decline, and interest rates are in a softening trend. The market anticipates that the RBI might introduce a rate cut in June. These three factors -- early monsoon, falling inflation, and potential rate cuts together create a very favourable macroeconomic environment," added Solanki.
On Tuesday, the Indian Meteorological Department (IMD) projected above normal rainfall amounting to 108 per cent of the long-period average in June. During the entire monsoon season, may receive 106 per cent of the long-period average rainfall of 87 cm.
Also read: Can early monsoons storm the markets or just the drizzle?
Experts, however, add that a key factor will not only be the early onset but total cumulative rainfall across the season. An early start alone is not enough, as adequate rainfall through the entire monsoon period is essential for sustainable agricultural output and water availability.
“Another factor to consider is that the festive season this year is front-loaded, unlike last year, when festivals were delayed. This early festive season will likely contribute positively to demand in both the current and following quarters,” said Solanki.
Here are the key sectors, which could benefit from the early onset of monsoon.
Agriculture & Agri-Inputs
With the sowing season kicking off, fertilizer, agrochemical, and seed companies are set to benefit from early rainfall, which aids timely planting and improves yield prospects.
Stocks to watch include Dhanuka Agritech, UPL, PI Industries, Rallis India, Chambal Fertilisers.
Autos and tractors
Experts note that a strong rural economy typically lifts demand for two-wheelers and tractors, supported by better agricultural incomes.
“Rural-focused companies are expected to benefit. Stocks which offers both commercial vehicles and agricultural equipment, as well as two-wheeler manufacturers like TVS Motors and Hero MotoCorp, are well-positioned to gain from improved rural incomes,” said Solanki.
Similarly, Sunny Agrawal, Head of Fundamental Research at SBI Securities said that the tractor segment also stands to gain significantly. "Mahindra & Mahindra, the market leader, expects around 6–7% industry volume growth in tractors this year, boosted by the favourable monsoon timing,” he said.
Some of the stocks to watch out include Mahindra & Mahindra, Hero MotoCorp, TVS Motor, Escorts Kubota, VST Tillers
FMCG & Consumer Staples
FMCG firms with deep rural penetration may see volume growth recovery, aided by both improved demand and easing raw material prices.
“FMCG in categories aligned with seasonal demand could benefit. For instance, during summer, there is typically a boost in demand for coolers, air conditioners, and cold beverages. While the earlier arrival of the monsoon could slightly shorten the peak summer sales window, we believe the overall impact will still be net positive,” says Nirav Karkera, Head of Research at Fisdom.
Solanki adds that companies with strong rural linkages like ITC have scope for a strong performance. "The sector led the market at the start of the year but entered a consolidation phase after March. Now, it appears ripe for a breakout,” he adds.
Stocks to watch include ITC, Hindustan Unilever, Marico, Dabur, Godrej Consumer
Seasonal plays may see a negative impact
While the monsoon bodes well for rural demand, some urban and seasonal segments may be negatively affected.
Agrawal says that consumer durables like air conditioners, refrigerators, and ice creams may see reduced demand, as the last two weeks of May and early June are usually the peak season for these products. EMS companies supplying components to consumer durable OEMs may also see marginal impacts, he said while adding that FMCG companies with large exposure to seasonal products like Emami (with their Navratna Oil) could see some impact.
Valuations and stock price: No major changes expected
Despite recent gains, many monsoon-sensitive sectors are still attractively valued after recent corrections. “In terms of valuation impact across sectors, the monsoon’s early arrival isn’t expected to cause significant shifts. While there may be minor fluctuations, the overall market has largely factored in this seasonal dynamic,” says Karkera.
Solanki adds that the market has not yet fully priced in the early monsoon, as it is still the initial phase. While the IMD has officially declared the monsoon’s onset, there’s a cautious wait-and-watch sentiment in the market,” he says.
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