The timely onset of the monsoon season from June 1 and the likely normal rainfall projects a strong outlook for the kharif sowing season, which is critical at such a challenging time.
In light of the current COVID-19 crisis, we look at the rural economy which has been less affected by the pandemic so far. Rural India plays a very important role, as it contributes 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. Most of the mandis had got re-opened, which led to an upbeat sentiment in the last two months. Rabi crop flow has been smooth, with 85 percent of the harvest having arrived at the mandis. The government which generally buys 15–20 percent of the produce for 38 commodities, has continued with its buying program and has managed the current situation well.
The rabi season ended on May 15 and is now transitioning to Kharif sowing season. At present, it appears the Kharif crop is unlikely to be affected and may see a normal season. While the logistics have been staggered, they are also expected to improve going forward as the lockdown is getting lifted in a staggered manner.
The timely onset of the monsoon season from June 1 and the likely normal rainfall projects a strong outlook for the Kharif sowing season, which is critical at such a challenging time. As the rain distribution is likely to be good across the regions, including the east and the north-east, production of all the Kharif crops – cereals, pulses, oilseeds, coarse cereals, cotton and sugarcane is expected to be robust and farmers may expand the acreage.
The government has also provided support to the farmers by hiking the MSP for 14 Kharif crops for 2020-21 by 2-13 percent. In addition it has extended the time frame for farmers to repay their loans by August-end. All this would boost farmers' sentiments and provide a decent expansion to the farm sector which will partly soften the blow to the economy, which is ravaging under the COVID-19 outbreak.
The urban migrant labour is now returning to villages and getting registered under MGNREGA. They may now be able to engage in productive work in rural areas depending on skills set and the type of work available. In the recent stimulus announcement, the government increased the MGNREGA allocation by Rs 40,000 crore and raised the wages to Rs 202 from Rs 180. This would lead to an overall increase in wages (outside of MGNREGA as well), in turn leading to higher rural incomes. This bodes well for rural consumption.
Nonetheless, 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.
The author is Head Equity Strategist - Broking & Distribution at Motilal Oswal Financial Services.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.