Shares of companies dependent on the rural economy — fast-moving consumer goods, fertilisers, sugar, tractors and non-banking finance companies — caught investor fancy on Wednesday after the India Meteorological Department’s forecast of a normal monsoon with 100 per cent rainfall raised the prospects of better farm output and higher economic growth.
Stock prices of companies such as Maruti Suzuki, Hindustan Unilever, Rallis India, Nestle India, Britannia Industries, EID Parry, Balrampur Chini, Marico, GlaxoSmithKline Consumer, Dabur India, Emami, M&M, Escorts, Coromandel International, Chambal Fertilisers, Rashtriya Chemicals & Fertilisers, Fertilisers & Chemicals Travancore, Nagarjuna Fertilisers and National Fertilisers jumped 2 to 7 per cent. NBFCs such as Gruh Finance, M&M Financial Services, Repco Home Finance and Bajaj Finance, which have greater presence in the hinterland, also gained from the strong momentum.
Inflation worries to easeMany of these stocks touched new 52-week or all-time highs on Wednesday on the NSE.
“Last year, we had a normal monsoon season, which helped softenfood inflation and strengthen the rural economy. With good rainfall this year, we believe the economy will continue to see higher farm output which will ease inflation worries further,” said Vaibhav Agrawal, Head of Research, Angel Broking.
Rural India-related stocks, especially of FMCG companies, have been laggards in the current market rally, as Bharat was worst hit by demonetisation.
FMCG companies will be the biggest beneficiaries as most of them derive significant business from rural India and many are dependent on agriculture to meet their raw material requirement.
High agri output as a result of copious rains will bring down their raw material cost, making them more competitive. Consumer durable companies (higher demand) and banks (less scope of farm loan waiver or NPAs) will also gain.