Stocks To Watch Out As You Get Dressed In Raingear

Even before the monsoon drill could kick off during the last week of May as heatwave continues to claim lives and markets wait anxiously for the rainy season, prediction by Skymet, India’s first privately manned meteorological agency has definitely brought in much-awaited broad smiles on the faces of the industries and investors. On May 25 at the time of filing this report, Skymet has predicted that there has been a 92 per cent chance of the country receiving normal and above rainfall this season.

Skymet:

“There are 92 percent chances of India receiving normal and above rainfall this season with states like Maharashtra and Madhya Pradesh to get excess rainfall in certain pockets,” Skymet claims. Skymet also expects moderate monsoon-related risk for geographies such as Tamil Nadu, northeast India and south interior Karnataka through June, July, August and September (JJAS).  At the same time some pockets of Uttar Pradesh and Bihar could experience less rainfall as per the private agency. Central India and west coast can expect to have good amount of rainfall. Interestingly Skymet research suggests that the second half of the monsoon will be better than the first half. There are 25 per cent chances of excess rainfall, 37 per cent chances of above normal rainfall and 30 per cent chances of normal rainfall for the entire season i.e.  in June, July, August & September. 

Skymet report also suggests that this year's rainfall could be the highest since 1994 with odds of La Nina increasing. This kind of rainfall is expected to boost plantation of rice, oil seed crops and corn. The El Nino is tapering off and it will collapse after the onset of Monsoon. There are more chances of getting into La Nina in the later part of this year. La Nina typically brings more rains to parts of Asia and India and is somewhat opposite of El Nino. According to Australian Bureau of Meteorology, based on 26 El Nino events since 1900, 40 percent have been followed by La Nina and about 50 percent by a neutral year. 

IMD:- 

Country’s national met agency, IMD in its forecast has suggested a delayed monsoon. The date given by IMD is June 7 for the arrival of Monsoon in Kerala. The normal monsoon onset over Kerala is June 1.

The IMD has been issuing forecasts for the date of Monsoon onset over Kerala using an indigenously developed statistical model with a model error of +/- 4 days. IMD issued forecast for past 11 years i.e. 2005 to 2015 have been correct except for the year 2015. 

The conditions are becoming favourable for the onset of southwest monsoon over Nicobar Island, south Andaman sea and parts of south Bay of Bengal around May 17 and advancement over the entire Andaman Sea close to its normal date. Past data reflects that there is no association of the date of monsoon advance over the Andaman Sea either with the date of monsoon onset over Kerala or with the seasonal monsoon rainfall over the country. The southwest monsoon is likely to set over Kerala on 7 th June with a model error of ± 4 days.

Beneficiaries:

Tractor Industry:-

Having faced two consecutive years of decline in growth, tractor manufacturers may finally see some growth due to lower base and good monsoon. With normal monsoon predicted, the health in rural economy can improve and the tractor sales are directly related to health in rural economy. With series of good monsoon, the purchasing power of agriculture community can improve and that can lead to 15-20 percent jump in tractor volumes.

Agrochemicals:-

Agrochemical industry is expected to grow steady at 9 percent annually till 2020. Several government initiatives and policies have provided much needed impetus to the agrochemical industry. Government of India through its policy measures have enabled farmers to gain access to credit facilities. Availability of credit facilities to purchase agrochemicals is the primary driver for the market, as we understand.

The implementation of integrated pest management (IPM) as a new method of crop protection is another important factor leading to growth of the agrochemicals market in India.

Seeds Industry:-

We anticipate seeds industry in India is expected to grow at a double digit rate in the medium term driven by improved seed replacement ration (SRR) and rising adoption of improved hybrid seeds. The improvement in R&D is expected to keep profits healthy for private seeds companies.

The favourable policy environment is supporting the usage of seeds through National Seeds Plan and boosting agricultural productivity through National Food Security Mission (NFSM). 

Conclusion:- 

After two difficult consecutive years for Indian agriculture sector due to monsoon failures, finally there is some good news pilling up on the weather front. It is important to note here that the probabilities for four months show lowest reading of 3 percent chance of drought. The prediction of above normal monsoon is seen to be a great confidence booster as the monsoon will clearly affect the agricultural production even as the agricultural production in country is expected to grow by 6 percent. 

Normal monsoon has been factored in by various agencies and government of India while forecasting economic growth. Agriculture growth is very important for Indian economy and the contribution from agriculture sector will improve with above normal monsoon in India. Agriculture sector roughly contributes to 16 percent to Indian GDP and 10 percent of export earnings. Agriculture related stocks can show good amount of growth in earnings thanks to good monsoon and a series of good monsoon can really bring cheers to the sector. So get set ready for a good monsoon on the cards and good rain can always lead to showering of money when it comes to investing wisely on the stocks which may impact positively due to sufficient rains.