Hello, Agriculture is considered to be the backbone of the Indian economy, and the monsoon is its lifeblood.
If there is any change in the monsoon, then its effect comes on our economy.
Being an agricultural economy, on average, 18% of India's national income comes from the contribution of agriculture and allied sectors.
And when India's economy depends so much on the agriculture sector, why are not all eyes on IMD's monsoon forecast?
96–106% of the Long Period Average (LPA) in North East India and 92% in northwest India – 108% of LPA is considered 'normal'.
Rainfall LPA is the amount of rain recorded in a particular area over a given interval – a month or a season – that is averaged over a longer period.
And the recently released forecast from IMD is good news for the agricultural economy and rural population of India.
If seen, 55% of India's agricultural production is dependent on rain.
The bumper farm output can help control rising inflation and will also give a boost to consumer demand in rural areas.
Still, the maximum population of India belongs to rural areas.
And when demand picks up in rural areas, a positive effect can be seen on the income of the people there.
All this creates a strong economic outlook for the country and in turn, can give a lift to companies that cater to rural areas and the farming community.
We can also see its direct effect on the stock price of those companies.
It is said that whenever the IMD has announced the normal monsoon, the market has given gains.
You can see this through the data given in the ongoing table.
So in today's video, we will discuss 6 such stocks related to 3 sectors that will be a positive effect on a good monsoon season
The numbers in the video we have considered at market closing on 29th June 2022. So let's start today's list.
Agribusiness- Of course, a good monsoon directly affects the production of our agricultural products.
Agri-businesses play a very important role in our agricultural economy, especially agrochemicals, and integrated agriculture solutions providers.
Many agriculture companies are involved in the research and production of agricultural inputs such as hybrid seeds.
Good rains increase the demand for these products.
Pesticides are used in large quantities to protect the crop from insects and weeds. Fertilizer also helps in increasing agricultural production.
Good rains are a critical factor for the sector, which are critical for the business performance of companies across sectors.
We have covered 2 agri-businesses here that can benefit from a good monsoon.
The first company that we are going to cover in this sector is Kaveri Seeds Company Limited.
After Nuziveedu Seeds Ltd., this company is India's second-largest hybrid seed producer.
Since Nuziveedu Seeds is not listed on Stock Market, we have covered Kaveri Seeds Limited here.
Kaveri Seeds Company is one of the leading Hybrid Seed Manufacturers in India focusing on Main Crops.
The company has over 65,000 acres of land for seed production as well as 12 distinct agro-climatic zones and over 1 lakh produce producers.
In addition, Kaveri Seeds' pan-India operations and well-established distribution network, and an extensive focus on R&D give them a competitive edge.
To boost sales, the company distributes its products through 15,000 customer touch points across 15 states.
In addition, the company is engaged in the R&D of seeds by 20 scientists on its 600 acres of land.
The biggest risk for the company is the market sale of illegal herbicide-tolerant Bt (HTBT) cotton seeds.
The sale of illegal seed packets increased from 30 lakh in 2020 to 75 lakh in 2021.
Due to this, the revenue of the companies is getting hit.
We have also included the prices of 2 technical indicators so that you can see the stocks from a technical perspective as well.
We have used 2 indicators- 200 days moving average i.e. 200 DMA and RSI (14).
If a company's stock price is trading above the 200 DMA, the stock can be considered bullish.
And if the price is trading below the 200 DMA then the stock can be said to be bearish.
In terms of RSI, RSI values ​​below 30 are generally considered oversold; thus, a trend reversal ie a downtrend can lead to an uptrend.
Similarly, an RSI value above 70 is considered overbought, and a trend reversal is likely.
The second company that we are going to talk about is Coromandel International Limited.
We have selected Coromandel International Limited because it is the company with the largest market cap in the fertilizer segment.
Along with this, this company is also India's largest phosphatic fertilizer manufacturing company.
It is India's leading agriculture solutions provider offering a diverse range of products and services across the agricultural value chain.
It is specializing in Plant Nutrient and Crop Protection Solutions such as fertilizers, Crop Protein, Biopesticides, Special nutrients, and Organic fertilizers.
The biggest opportunity before it is the growing population of the world and the improvement of socio-economic indicators that are driving global food consumption.
The rise in food demand as well as other factors such as changing dietary patterns and overall agricultural practices is a positive for the company.
At the same time, the company's strong revenue and profit growth reflect its resilient business profile.
The biggest risk facing the company is the regulated fertilizer industry and exposure to volatile raw material prices.
The fertilizer industry is strategically important to the government and remains heavily controlled.
Under the Nutrient Based Subsidy Scheme, the Government of India is giving additional subsidies to the manufacturers of phosphatic fertilizers.
And being a manufacturer of phosphatic fertilizers, the company depends on imports for major raw materials such as rock phosphate and phosphoric acid.
The cost of raw materials accounts for about 70% of the operating income of the company,
due to which there is a steep change in subsidy and imported raw material, the margins of the company can be hit hard.
As you can see on your screen, we have shown some key financial and technical ratios of the company.
Now let's come to the next sector, which will have a positive effect due to good monsoon. FMCG
Whenever the IMD forecasts a normal monsoon, the FMCG sector has seen an increase in demand as the income level of the rural population rises.
FMCG companies in Indian villages contribute 35% of the total sales.
The use of raw materials and commodities like wheat, etc., available in the sector due to the arrival of normal monsoon helps in improving the margins and revenue of the companies.
In this video, we discuss the top 2 market cap companies in this sector.
The first company that we are going to cover in this sector is Hindustan Unilever Limited.
Hindustan Unilever Limited is one of the leading private companies in India.
The company has a diversified business portfolio that operates in the FMCG segment.
The primary business of the company comes from Home Care, Beauty & Personal Care, and Foods & Refreshment segments.
The company has built several brands over the years which have now become leaders in their respective segments.
Through these brands, the company is coming to unlock value, for its customers and shareholders.
The company has a diversified product portfolio with home-care 31%, beauty, and personal care products 40%, and foods and refreshments 29% of revenue.
Following the merger with GlaxoSmithKline Consumer Healthcare Ltd, HUL has the potential to grow its market share rapidly.
The biggest weakness of the company is the heavy competition in the FMCG sector.
In the FMCG sector, both highly organized and unorganized players are active for years.
HUL has been facing intense competition with the entry of multinational companies in sectors such as soaps, detergents, personal care products, and packaged foods.
Due to this, there may be pressure on the profit margin of the company.
As you can see on your screen, we have shown some key financial and technical ratios of the company.
Another company is ITC Limited.
ITC is one of the leading private companies in India.
It has a diversified business portfolio that deals in segments such as FMCG, Cigarettes & Cigars, Hotels, Paperboard & Specialty Paper, Packaging, Agri-business, and IT.
The company has built several brands over the years which have now become leaders in their respective segments.
Brands are bringing in value unlocking action for their customers and share, holders in the company.
The biggest strength of the company is its Agribusiness Unit which provides the raw material for its other major business segments like Cigarettes and FMCG Food Products.
And ITC having the largest farmer network in the country has been instrumental in maintaining high margins of the company and minimum issues in the supply chain.
At the same time, their cigarette business segment has the potential to grow their FMCG, hotel, and other businesses with the high cash-generating potential that a company can deploy.
ITC has a diversified revenue stream which improves its business risk profile.
The biggest weakness of the company is its excessive dependence on the cigarette business.
ITC generates most of its profit through this business segment.
What's more, there is a substantial regulatory overhang over the company's tobacco and cigarette business, which could pose a major risk to the company.
With this, if you see, India's cigarette industry is showing a gradual decline, due to which the company's growth prospects may be less.
As you can see on your screen, we have shown some key financial and technical ratios of the company.
Now let's come to the last sector, which will have a positive effect due to good monsoon. Automobile.
The good rainy season pushes the demand for two-wheelers, tractors, and low-cost four-wheelers in the rural agriculture sector.
The rural market is the land for a third of the sales of auto companies.
With the blessings of the Rain Gods, auto companies may be able to increase their sales and margins in the next quarter, which can have a positive impact on their stock performance.
The first company that we are going to cover in this sector is Hero MotoCorp Ltd.
We have selected Hero MotoCorp in this segment as it is a leader in 2 wheeler segment and its ongoing segment generates maximum revenue from rural areas.
The company has consistently been the world's largest 2-wheeler manufacturer in terms of sales volume for 19 years.
The company has a strong product portfolio in the bike segment such as Splendor, Passion, and Glamor,
and in the scooter segment with well-known brands such as Pleasure and Maestro.
Hero MotoCorp India's two-wheeler industry covers a market share of 37.04% and 50% of its revenue comes from rural areas.
This means that when the financial condition of farmers improves due to a healthy monsoon, it is at the same time boosting the sales of Hero MotoCorp.
Hero MotoCorp's biggest strength is its financial risk profile.
The company's standalone basis is virtually debt-free (debt to equity of 0.04) in terms of pricing and fresh investments and its strong financial position gives them an edge.
Apart from this, the company has also invested in Ather Energy Pvt Ltd which is an electric scooter company.
Along with this, the company also has its internal incubation center which will facilitate the development of electric two-wheelers.
The company's one weakness is the company's poor sales growth over the years.
Despite the company having a good market share, its sales growth is very low.
In the last 5 years, the company's sales have compounded by just 0.65%.
As you can see on your screen, we have shown some key financial and technical ratios of the company.
Another company is Escorts Kubota Limited.
Though Mahindra & Mahindra Ltd. has the largest market cap in the tractor industry, we have chosen Escorts Kubota Ltd as its 77% of the company's revenue comes from the Agri Machinery segment.
Escorts is one of India's leading engineering conglomerates involved in the manufacturing of Agri-Machinery, Construction & Material Handling Equipment, and Railway Equipment.
Recently Kubota Corporation has increased its stake in the company, tax to 44.8%.
With this, the company rebranded its name from Escorts Limited to Escorts Kubota Limited.
The company's main source of revenue comes from the EAM segment ie Escorts Agri Machinery.
The company covers a market share of 11.4% in the domestic tractor segment.
Now the demand for the tractor is directly dependent on rain.
A normal or above normal rainfall indicates a good opportunity for farming, and at the same time has the power to consider a positive sign for the tractor industry.
The company's biggest strength is its healthy market position in the tractor industry and its diversified portfolio
Escorts Limited has a healthy presence in North, East, and West India with the equal company gaining market share in South India as well.
Apart from Agri Machinery, the company also deals in Construction Equipment and Railway Equipment Division.
The diversification in these revenue streams reduces their business exposure for the escorts.
The biggest risk for the company is the volatility seen in the prices of its raw materials such as steel.
Escorts' operating profitability has come under severe stress due to high steel prices and strong competition.
And due to a lack of pricing power, the company is unable to pass on the high raw material cost to the customer.
As you can see on your screen, we have shown some key financial and technical ratios of the company.
So these are the sectors and companies which can give good performance in the coming monsoon season.
Please remind you that this video is for educational purposes only, and is not a buy or sell recommendation of any kind.
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