Brokerages bullish on rural theme stocks despite run-up

MUMBAI: Financial institutions and market intermediaries such as Deutsche Bank, Ambit Capital, Geojit BNP Paribas and India Infoline are advising clients to invest in companies likely to benefit from any resurgence in rural demand, anticipating that one of the nation’s worst droughts in decades will end soon.

Shares of automobile manufacturers and agriculture related firms, like Hero MotoCorp, Escorts and M & M Financial, whose fortunes are partly tied to the rural economy, are in the recommended shopping list.

Analysts said stocks which have already rallied on hopes of above normal monsoon may continue to remain buoyant if corporate results of respective companies deliver higher than anticipated earnings in the current earnings season.

“The year that sees normal monsoon after a deficient one, records sharper agri-GDP growth of around 8.5%. About 58% of rural households are engaged in agriculture, thus an agrarian recovery may drive rural growth in FY17,” said Anindya Bhowmik, strategist at Phillip Capital. “Shares of Hero MotoCorp, Escorts, M&M Financial and Coromandel stand out as major beneficiaries.” Meanwhile, India Meteorological Department (IMD) has forecast that the rainfall will be above average this year, with weather conditions indicating that El Nino is gradually fading, signalling good rains.

According to Skymet, a private weather forecaster, monsoon will be above average this year, snapping two back-to-back years of drought which affected farm output and income.