In Focus: Scrips that like a cloud on the horizon

Mumbai: Stocks belonging to sectors such as fast-moving consumer goods (FMCG), agriculture, automobiles - especially two-wheelers and tractors - retail and hotels are likely to be in focus in the next few months, as the India Meteorological Department (IMD) has forecast an above-normal monsoon. Sufficient rainfall in the June-September season can lead to faster growth and lower inflation, thanks to increased food production, according to analysts.

Companies such as Hindustan Unilever (HUL), Britannia, Dabur, Hero Motocorp, Westlife Foodworld, Shoppers Stop and others have already indicated in their commentary a gradual demand recovery if the monsoon forecast turns out to be accurate.

"The above-normal monsoon will likely benefit sectors and companies with a presence in rural areas, as it boosts spending from the bottom and favours consumption-related sectors such as consumer durables, consumer staples (FMCG), auto, real estate and fertilisers," said Shrikant Chouhan, head of equity research at Kotak Securities. "We like stocks such as Eureka Forbes, HUL, Godrej Consumer, ITC, M&M and DLF."

Anticipating Rural Revival
After six months of underperformance, the Nifty FMCG Index has risen by 1.87% so far in May, as against a 1.48% gain in the Nifty 50 Index, anticipating a bounceback in rural demand due to good rainfall.

"A timely and above-normal monsoon will boost demand in sectors reliant on rural markets, such as consumer durables, FMCG, two-wheelers, and tractors," said Pankaj Pandey, head of research at ICICI Securities.

"However, prolonged rains could dampen demand at companies that are into air-conditioners, ice-cream, beer or construction-related businesses," he added.

HUL's management recently stated that the forecast of an above-normal monsoon and improving macroeconomic indicators should aid recovery. It noted that volume revival remains gradual due to high cumulative inflation over the past few years and a weak monsoon in previous years affecting rural demand. Hero MotoCorp, in its commentary, said demand momentum is expected to persist, given the forecast. Similarly, Dabur remains optimistic about a gradual uptick in consumption trends over the next fiscal year.

"We believe a good monsoon can help boost rural recovery, which has been struggling for the last few years. However, we still need to monitor the spatial distribution and progress of the monsoon," said Neeraj Chadawar, head of fundamental and quantitative research, Axis Securities.

"In this context, the FMCG sector, two-wheelers and value-ticket items could experience demand revival in the second half of FY25."

Rural demand has shown some recovery in anticipation of a good monsoon. According to a recent note by Angel One, FMCG companies registered a 7.6% year-on-year sales growth in rural areas in the March quarter, outpacing urban growth for the first time in three years. Sales of motorcycles and scooters in India rose by 33% year-on-year in April, according to data from the Federation of Automobile Dealers Associations.

Pankaj Chhaochharia, analyst at Antique Stock Broking, said, "Past trends suggest that normal to above-normal monsoon provides a fillip to overall growth in the economy, especially agriculture."

"Management commentary also indicates there are early signs of pickup in rural demand on a low base, which may get further boost due to above normal monsoon."