Good monsoons to boost rural income, 10 stocks that may gain

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Updated: April 20, 2016 12:18:29 PM

Good monsoons will boost rural incomes as a large proportion of India’s population is dependent on agriculture.

Rural shares - good monsoonGood monsoons will boost rural incomes as a large proportion of India’s population is dependent on agriculture. (Photo: PTI)

Monsoon rains are expected to be 106 per cent above the  long period average (LPA) as per IMD compared to 86 per cent last year during the southwest monsoon season. Good monsoons will boost rural incomes as a large proportion of India’s population is dependent on agriculture. Increase in rural incomes would be a major positive for companies and sectors dependent on rural consumption.

A better monsoon will also result in enough water for irrigation, which will keep food prices down, ensuring lower inflationary pressures. This would provide the RBI further room to reduce its benchmark lending rate.

Vaibhav Agrawal, V-P and head of research, Angel Broking, said, “We expect the RBI to reduce rates by at least another 25 basis points in the next 3-6 months. Lower interest rates would also lower EMIs which could result in more money in the hands of consumers. We believe this would be very positive for the FMCG, auto, tractors & two-wheeler, and consumer durable companies. A normal monsoon will directly boost sales of farm equipment companies too.”

Below are 5 rural focused stocks which can give positive return to investors from here onwards:

Mahindra and Mahindra
Target Price: Rs 1,364
Recommended By: Angel Broking
Investment Rationale: Mahindra & Mahindra (M&M) is the largest and dominant player in utility vehicles and tractors in India. Angel Broking expects 21 per cent volume growth in UVs in 2016-17 on the back of these products. As the monsoon is expected to be above normal this year and with higher budgetary allocation of Rs.87,765 crore (above 10 per cent) for development of the rural sector (including Rs 38,500 crore for MGNREGA), M&M should see a strong recovery in FY2017 in both the Auto and Farm segments for the company. Tractor segment should also see a boost in the medium-term volume growth led by continued need for mechanisation.

Siyaram Silk Mills
Target Price: 1,354
Recommended By: Angel Broking
Investment Rationale: Siyaram Silk Mills (SSML) has strong brands which cater to premium as well as popular mass segments of the market. Going forward, the brokerage house believes that the company would be able to leverage its brand equity and continue to post strong performance. The company has a nationwide network of about 1,600 dealers and business partners. It has a retail network of 160 stores and plans to add another 300- 350 stores going forward. Further, the company’s brands are sold across 3,00,000 multi brand outlets in the country. Angel Broking sees SSML to report a net sales CAGR of over 10 per cent to nearly Rs1,815 crore and adjusted net profit CAGR of around 11 per cent to Rs 98 crore over FY2015-17E on back of market leadership in blended fabrics, strong brand building, wide distribution channel, strong presence in tier II and tier III cities.

Procter & Gamble Hygiene and Health Care Ltd
Target Price: Rs 7,369
Investment Rationale: Procter & Gamble Hygiene and Health Care Ltd (P&G) is one of India’s fastest growing fast moving consumer goods companies with well recognized portfolio. P&G is best placed to benefit from the opportunities arising on the back of rising disposable incomes and increasing proportion of working women in the country coupled with its widening distribution reach. On the top-line front, Angel Broking expects the company to report around 13 per cent CAGR and on the bottom-line front, around 15 per cent CAGR over FY2015-18E on the back of strong brands and distribution network. Further, P&G is a market leader in both of its product, i.e. Whisper (female hygiene segment) and Vicks (healthcare segment- Ointment, Creams, Cough Drops etc).

Dhanuka Agri, Rallis India and Bayer Crop:
Recommended By: SAMCO Securities
Investment Rationale: Dhanuka Agri, Rallis India and Bayer Crop have great brands, strong distribution networks and efficient operations, inspite of previous two years of bad monsoons these companies have maintained operating efficiency and protected their market share. Once the monsoon set in they will be able to capture the incremental growth.

Bajaj Auto, Hero Moto and M&M Finance
Recommended By: SAMCO Securities
Investment Rationale: Bajaj Auto, Hero Moto and M&M Finance also have great potentials to race ahead in case the rural economy thrives on the success of monsoon this year.

HUL
Recommended By: Sharekhan
Investment Rationale: Sharekhan in a research note said, “We continue to like HUL on likely improvement in rural economy to drive growth.”

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