Experts point out that the rabi season ended largely on expected lines and at present, it appears the kharif crop is unlikely to be affected and may see a normal season.
Even as COVID-19 has hit all sectors of the economy, India's agriculture sector is a point of hope, which experts believe, has been relatively less affected by the coronavirus pandemic.
With the prospects of a normal monsoon, this hope is bolstered now.
The India Meteorological Department (IMD) in its second and detailed forecast said monsoon this year is likely to be 'normal' at 102 percent of the long-period average (LPA) with a model error of (+/-) 4 percent.
If the forecast holds true, this will be the second consecutive year that the country will witnesses normal/above-normal rainfall.
"The monsoon this time holds a lot of importance, as this time around it will not just have an impact on agriculture, but bearings on employment generation, auto sales, and demand for everything from cement to steel. Thus, from the equity market perspective, tractor, two-wheelers, auto/rural financing, agrochemical and select FMCG companies will benefit from the good monsoon," said Hemang Jani, Head Equity Strategist - Broking & Distribution at Motilal Oswal Financial Services.
Siddharth Sedani, Vice President - Equity Advisory, Anand Rathi Shares and Stock Brokers concurs to the view.
"The Indian monsoon will no longer just be important for agriculture but for the whole of India Inc as well as government finances, as COVID-19 induced slowdown will hinder manufacturing, services, and demand growth," Sedani said
"Monsoon seems to be a key aspect that Indian companies can look forward to this year. A good monsoon might bring good tidings, at least for some companies," he added.
Rural India contributes roughly 53 percent to India's GDP. Except for the villages very close to urban areas, rural areas were not much impacted by the COVID-19-led lockdown.
Experts point out that the rabi season ended largely on expected lines and at present, it appears the Kharif crop is unlikely to be affected and may see a normal season.
Here are the stocks that could benefit from the activity in agri sector
Analyst: Siddharth Sedani, Vice President- Equity Advisory, Anand Rathi Shares and Stock Brokers
The analyst sees NCC’s multi-sector execution capabilities to come to its rescue in the immediate future and set the stage for it to emerge as one of the beneficiaries of the unaltered long-term growth prospects. Valuations, too, have turned appealing, after the recent steep fall, and prod us to change our long-held cautious stance.
"Adjusting for the COVID-impact, we slash FY21E earnings by nearly 48 percent and by nearly 0.2 percent for FY22. At the current market price, the stock quotes at EV/EBITDA of 2.6 times FY22E, against the target price implied 4 times," said the analyst.
In terms of strategy to mitigate the short-term impact, the company has started to improve cost efficiency in its non-business segments and lower promotion spend. The company’s production and sales have also scaled back to 75 percent of its total normal capacity. During the period the company has also improved market share by 50 basis points.
"While current macro economic conditions are likely to keep demand subdued in the near-term, we remain optimistic over the long-term. We believe HUL is the largest FMCG company with one of the largest footprints in terms of products and distribution networks, continued focus on strategy to target volume growth and decline in material and other costs should drive outperformance in both growth and profitability in medium to long-term," said the analyst.
On the product filing front, Cipla has filed 259 ANDAs (Abbreviated New Drug Application) with the USFDA cumulatively (FY20) with 175 of them already approved and 22 tentative approvals. The company currently spends 7-8 percent of revenues on R&D.
In the domestic market, Cipla remains among the top five players, due to a complete range of product offerings, which covers almost all therapies, and is built on a network of nearly 7,500 medical representatives covering a doctor base of nearly 5,00,000.
"We believe with healthy earnings growth and core ROCE expansion over FY20-22E, valuations are likely to witness re-rating," said the analyst.
As per the analyst, the company will continue with advertisement spending to boost brand recognition and sales growth while focusing on innovation and product launches as well as restructuring moves.
"We believe the company is well-positioned for continued growth owing to its strong portfolio of branded products, expanding distribution network and the expected revenue and cost synergies from the merger with the consumer business of Tata Chemicals," said the analyst.
The company's March quarter numbers were severely hit by COVID-19. However, the analyst expects a gradual recovery.
"We are expecting significant revenue loss in the first half of FY21, but we see demand recovery to be gradual in the second half of the year and bounce back in FY22 on a low base. Thus, we estimate 5 percent and 4 percent CAGRs in revenue and PAT over FY20-22, respectively, with margins and return ratios returning to earlier years, and FCF continuing," the analyst said.
Analyst: Jyoti Roy, DVP Equity Strategist, Angel Broking
Colgate Palmolive is the market leader in the dental care segment with over 50 percent market share and strong brand recall.
The analyst believes that the company should ultimately be able to see sharper market share gain in the toothpaste segment on the back of higher ad-spend and re-launch of Colgate Strong Teeth.
Escorts is a prominent tractor player domestically with more than 11 percent market share. With rural India relatively less impacted due to COVID-19, record food-grain procurement by government agencies as well as the expectation of normal monsoon 2020, the analyst expects the tractor industry to outperform the larger automobile space in FY21E with Escorts a key beneficiary.
Coromandel International is India’s second-largest phosphatic fertilizer player, engaged in the business of fertilizers, especially nutrients, crop protection and retail.
COVID-19 impact on company business has been minimal as it falls under essential service. IMD forecasts of normal monsoon bode well for its business given that sowing is up by 13 percent in its addressable market.
Enhanced sowing during the ongoing rabi season in the south is generating good demand for agri inputs
Hero MotoCorp is India’s leading motorcycle manufacturer with an overall market share of 54 percent.
In FY2020 the company kept its market share intact. Entry-level motorcycles in rural India are expected to post a faster rebound in sales post COVID-19 given good monsoon and a shift from public transportation to personal vehicles.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.