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Yesterday, the government said foodgrain output in the 2022-23 season is estimated at 330.5 million tonnes, or a 4.7 percent increase over the previous year. This is as per third advance estimates, and compared to the second estimate, output of major crops such as wheat, rice, maize and coarse cereals are all up. Pulses’ output has seen a slight dip, however. Oilseeds output is also higher. Although erratic weather was seen as a risk to crop output in this season, it does not appear to have hurt output as per these estimates. That augurs well for farm income as well as food inflation.
There is more comforting news. The India Meteorological Department said today that the El Nino effect is unlikely to come in the way of India enjoying a normal monsoon year in 2023-24. The bureau issued its long range forecast. Rainfall is expected at 96 percent of its long term average with an error estimate of 4 percent on either side. While the weather bureau has retained its first monsoon forecast, the error band has been narrowed, lending more confidence. But it has also forecast deficient rainfall over North-West India, which is something to be watched out for, as it could affect agricultural output in this region.
The exit from 2022-23 on a good note as far as agricultural output is concerned and entering a new year with a reassuring monsoon forecast is good news for investors who invest in stocks linked to the rural sector. Rural demand has not been delivering good news on the consumption front, whether it is in basic items such as staples or discretionary items—both non-durables and durables.
A combination of low inflation, cheaper inputs and healthy farm output should lend some colour to one part of the rural economy, hopefully. But there are other contributors such as non-farm income earned from work in construction, real estate and industrial sectors. These sectors are seeing growth in parts, but it’s not a full-fledged recovery that is visible. For instance, real estate is seeing growth in the luxury segment but that’s not matched elsewhere such as in the affordable housing segment.
Consumption in 2022-23 is likely to have been driven more by urban than rural demand. Companies in the FMCG sector did say green shoots were visible in rural demand towards the end of the quarter, but management commentary still seemed more hopeful than certain that this could pick up pace. India needs the rural economy to get back into a pinker shade of health for socioeconomic reasons.
Investors too will benefit from a more well-rounded recovery. The slowdown in the tech sector, for instance, does pose a risk to discretionary consumption. A thriving rural sector can act as a counterweight to such risks. Hopefully, the K-shaped recovery that has been visible in 2022-23 shifts and the lower arm of the alphabet gets its due in 2023-24.
Investing insights from our research team
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Why this coding and marking player is ready to gain from recovery
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Cummins India: Riding on strong economic revival
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Technical Picks: Bajaj Auto, BHEL, Vedanta, Jubilant FoodWorks andCopper (These are published every trading day before markets open and can be read on the app).