Kshitij Anand Moneycontrol News
The S&P BSE Sensex which has rallied about 14 percent so far in 2017 has lost some momentum after hitting a record high of 30,712.35 earlier in the month of May.
However, experts on D-Street are not too worried as expectations of better than expected monsoon and implementation of goods & services tax (GST) by July is likely to push benchmark indices to fresh record highs.
The India Meteorological Department (IMD) has predicted the onset of the monsoon in Kerala on May 30 this year, but the seasonal rainfall may arrive a day before, said a report.
Ministry of Earth Sciences (MoES) Secretary M Rajeevan said the conditions look favourable for the arrival of the monsoon before the announced date.
“We feel the next trigger would be a combination of monsoon as well as the rolling out of the GST regime. While the FMCG pack has already discounted the move, old economy stocks, especially in the capital goods sector, would hold the sway,” Pushkaraj Kanitkar - AVP - Technical Research at GEPL Capital told Moneycontrol.
“Pre-monsoon, we are expecting a correction in the markets given that the dynamics indicate to a fatigue. The agro-related stocks, especially the fertilisers as well as agro commodities, which house in the smallcaps category, call for caution,” he said.
The normal date for the start of the seasonal rains over Kerala is June 1, which marks the arrival of the monsoon in the country.
With chances of a continuation of the El Nino effect, a phenomenon associated with warming of Pacific waters, the IMD has predicted a normal monsoon this year.
Recently, the Indian Meteorological Department (IMD) has predicted that the country will receive higher monsoon rainfall than forecasted earlier. A higher monsoon is a synonym for higher demand, as well as lower inflation.
“There is an assumption that with good rainfall there would be strong rural demand as a normal monsoon would increase spending ability of the rural population, which is dependent on agriculture, which can in turn help earnings growth of FMCG, consumer durables, agri inputs, fertiliser and cement companies,” D K Aggarwal, Chairman, and MD, SMC Investments and Advisors Ltd told Moneycontrol.
“With India's strong macro-economic fundamentals and expectations of growth accelerating in the economy would continue to attract foreign investment and India would continue to remain a bright spot among all the global economies with robust macroeconomic and fiscal parameters,” he said.
We have collated a list of ten stocks from different analysts which are likely to get benefit from good monsoon this year:
Analyst: Nitasha Shankar, Sr. VP, and Head of Research, Yes Securities.
PI Industries (PII) focuses on agri-inputs and custom synthesis. The agri-inputs division offers plant protection products, specialty plant nutrient products, and solutions. The customs synthesis division offers contract research and production of agrochemicals, intermediates and other niche fine chemicals for global innovators.
PI Industries has been able to successfully position itself as a partner for the global innovators in the agri-chemical space. It has been able to position itself as a company that respects IPR which in turn has helped it create a niche for itself in the market.
UPL is integrated across the agri-input value chain, with a presence in seeds (Advanta), crop protection and post harvesting. Geographically, it has diversified across regions, including Brazil (the largest agrochem market globally).
This helps mitigate risks such as regional concentration, sharp swings in currencies and volatile weather patterns. Normal monsoons in India could help drive growth for the India related business which formed 20 percent of total revenues for the company in FY16.
Marico’s long term strategy is geared to ride the changing consumption patterns and the rise in rural consumption. It has transitioned from the commodity business of manufacturing coconut oil to being a dominant player in the branded hair care and edible oil segments.
In recent times, rural sales for the company have grown at a faster pace as compared to the growth on the urban side. The rural growth, in turn, is dependent on the normal monsoons.
VST Tillers Tractors Limited (VSTT) is India’s largest power tillers player, having a market share of ~50 percent. The company has the capacity to assemble 60,000 tillers per annum. This product segment contributes to ~55% of its revenues. About 30% of revenues come from the sale of tractors.
While the company has been involved in this segment for decades, it has recently upped its focus on the same. VSTT’s tractor business is likely to drive growth going forward. With the company’s tractor plant currently working at 1/3rd of its assembling capacity, there is idle capacity available.
Tractor volumes have seen a sharp rise in the current year after two consecutive dull monsoons seasons. This, coupled with VSTT’s focus on increasing its reach and product offerings will lead the company to grow at a fast pace over the medium term
Supreme Industries Ltd. (Supreme) is a leading plastic processor in the organized market and operates in four segments - Plastic piping (48% of revenue), Packaging products (21%), Industrial products (12%) and Consumer products (7%).
Supreme has been present in the Indian market for five decades and enjoys an established distribution network. Healthy monsoons coupled with an increase in discretionary income related auger well for growth in demand.
Analyst: Deepak Jasani - Head, Retail Research, HDFC Securities
We like Bajaj Auto, based on 1) Strong product portfolio and increasing portion of premium segment models (KTM, Pulsar, Avenger, Dominar etc.) in overall volumes 2) Revival in export volumes (management is confident of achieving double-digit growth in FY18, 3) 3W sales will be boosted by a pick-up in rural demand, and new permits (over 40000 expected from Maharashtra and Delhi in the coming months) and 4) A strong margin profile.
With the company entering several new markets (including Poland, Malaysia, Nepal, Latin America), and some stability in the African market, management expects volumes to pick up significantly from the levels of FY17. In Q1FY18, management is expecting a run rate of 150,000 units (over 20% growth).
Finolex Industries (Finolex) is a largest branded player in the organised PVC pipes market in India, enjoying a volume market share of 19 percent. Finolex has a key edge owing to its backward integration (into PVC resin). Finolex plans to ramp-up its CPVC volumes exponentially over the near term, from 4,000 to 20,000 MTPA. CPVC EBIT margins are higher at over 10 percent, which should support overall margins.
The Indian pipes industry stands at around Rs220- 230 bn, with the irrigation and construction sectors largely driving demand. As per industry sources, the Indian pipes market is expected to grow at a 12-15 percent CAGR to touch Rs 350 bn in the next 3 years.
Almost 70 percent of the demand for PVC pipes and fittings stems from the agriculture sector (including irrigation and water supply). The remaining 30 percent is accounted for by the building sector (plumbing, sewage pipes, and drainage).
Greenply Industries Limited (GIL) is India's largest interior infrastructure company. It accounts for almost 26 percent of the organized plywood market in India and 30 percent market share in domestic MDF market.
Greenply Industries’ board has decided to expand the company’s plywood and allied product capacity by 13.5mn sqm to a total of 45.9mn sqm. This expansion is planned at a new facility in Hardoi, Uttar Pradesh, and will be eligible for fiscal benefits under the state’s Infrastructure & Industrial Investment Policy, 2012.
Greenply prefers to have in-house manufacturing facilities for premium plywood and decided to expand as its capacity utilisation for 9MFY17 stood at 107 percent.
The management expects GST implementation in FY18 to induce a shift from the unorganised to organised markets, leading to higher demand. The set-up of smart cities would also bolster demand for interior infrastructure.
Analyst: D K Aggarwal, Chairman, and MD, SMC Investments and Advisors Ltd
A Godrej Group Company, Godrej Industries Limited (GIL) is a conglomerate with a significant presence in Home and Personal Care, Animal Feeds and Agri-products, Poultry, Oil Palm Plantation, Real Estate Development Oleo-chemicals and Vegetable Oils, both directly and through subsidiaries/associate companies.
Meanwhile, the management expects that implementation of GST would provide strong momentum for a much better economic environment and stronger consumer demand.
Going forward, through its CREATE strategy, the company would continue to strengthen its position in all its core businesses while fostering an inspiring place to work. Thus, we expect the stock to see a price target of Rs 594 in 8 to 10 months.
The company has strong fundamentals and robust outlook. The strong growth in new commercial vehicles business is impacting the yields. In the case of used vehicles too, the share of vehicle less than 10 years of age is rising.
The company is focusing on below 10 years old vehicle as ticket size is lower for above 10 years old vehicle, while recovery efforts are similar.
In the case of below 10-year old vehicle, the higher volumes and ticket size has offset lower yields. Thus, it is expected that the stock will see a price target of Rs.1335 in 8 to 10 months’ time frame.
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