Bull-run in monsoon-related stocks weakens in August

Stock prices of companies directly or indirectly dependent on monsoon and operating in industries such as two-wheelers, passenger cars, tractors, fast-moving consumer goods, fertilisers and seeds have taken a pause in August.

The average gain in stock prices of 32 such companies in August stands at 4.5 per cent, compared to 19.3 per cent between mid-April and July-end though they have outperformed the benchmark and broader market indices that have gained an average 0.5 per cent in August. The India Meteorological Department (IMD) now predicts monsoon to be normal from surplus earlier.

On April 12, it had predicted above normal monsoon at 106 per cent of the long-period average. However,a cut in the monsoon forecast is not seen as a major worry by market experts and economists.

“I do not see this as a worry at all. I do not see progress of any crop or agricultural output or reservoir levels to be affected,” said Madan Sabnavis, Chief Economist at Care Ratings.

Monsoon-related stocks had rallied following forecast of above normal monsoon by the IMD in mid-April until July end as India saw drought in two consecutive monsoon seasons of 2014 and 2015.

“As long as monsoon is normal there is no worry. It should not rain during harvesting time,” said R Sreesankar, Head — Institutional Equities, Prabhudas Lilladher.

Benchmark index Nifty 50 slipped a marginal 0.5 per cent in August after gaining 9 per cent during January-July. Gains in broader market indices Nifty 500, Nifty free float mid-cap and Nifty free float small-cap during January-July was in the range of 7-10 per cent, which too came down to 0.05-2 per cent in August.

Inflows from foreign institutional investors in August (till date) at ₹7,787 crore has been lower compared to ₹12,612 crore in July. Domestic institutional investors have been continuing their selling spree. They have net sold ₹5,847 crore worth of equities in August.

However, market experts say that after a pause in August, stocks will again gather pace with the rise in agricultural output, pick-up in fund flows and overall improvement in market sentiments (including global markets).