Bulls keeping fingers crossed as a good monsoon is round the corner

After a straight 3 years of below average rainfall, Indian Meteorological Department has predicted an above normal rainfall this year. If the IMD is right in its prediction, then there are chances that the stock market will see a bull ride.

A good monsoon creates positive perception about the economy among investors, including foreign institutional investors, as a large part of India depends upon agriculture and its contribution in the GDP hovers around 15 per cent.  India's economy is known to be driven by domestic consumption, which will get a big boost as rural incomes will rise due to a good monsoon.

Also good monsoon will keep a check on inflation. Consumer Price Index (CPI), is a good measure of inflation, wherein from the period of April 2015 to April 2016, it has risen by 11 per cent. If it rains, then the inflation will be reduced to a favourable extent and that will indirectly imply a rate cut, which is supportive for industrial growth.

The following stocks are expected to rally if the rains return; FMCG, Auto and Auto ancillary, Agro based stocks etc.

In FMCG segment, Hindustan Unilever, Dabur and Godrej Consumer Products will benefit as these are the companies which have wider rural foot – prints. Good rains will increase the purchasing power of the farmers, as they will be able to produce more, which in turn will increase the demand for FMCG products.

Good rains will also bring in the demand for Auto, Auto Ancillary and Agro based products. In the Auto stocks Mahindra and Mahindra, in Auto ancillary Motherson Sumi, Amara Raja batteries, etc., could see a bull rally in the upcoming months.

The stocks with a lower P/E ratio among the above mentioned stocks will be a good pick as far as valuation is concerned.