An analysis of return offered during the post-budget rally and pre-monsoon rally by stocks of companies linked to rural economy including agrochem & fertilizers, automobile & farm equipments, pumps and FMCG, clearly shows that the pre-monsoon rally (from April 12 to date) has failed to carry the positive momentum erupted during the post-budget rally (from February 29 to April 12).
Along with India Inc., the stock markets had also given their thumbs up to the Finance Minister, Arun Jaitley’s Union Budget, in February this year. The overwhelming response to the budgetary announcements by the stock market participants, mainly dominated by FPIs, saw benchmark Sensex gaining 9%, till the IMD announced its phase one prediction of above normal monsoon for 2016.
Ever since the IMD predicted the rainfall to be 106% of the Long Period Average (LPA) on April 12, the stock market barometer has gained 7.5% as of June 7, 2016. This market scenario indicates that the post budget rally in equities from February 29 to April 12 seems to be losing sheen from the day IMD came up with monsoon estimates. Increasing volatility is believed to be the prime factor responsible for stocks of companies fetching significant revenues from rural consumption, paring gains clocked during the post-budget rally on Dalal Street.
An analysis of return offered during the post-budget rally and pre-monsoon rally by stocks of companies linked to rural economy, including agrochem & fertilizers, Automobile & farm equipments, pumps and FMCG, clearly show that the pre-monsoon rally (from April 12 to date) has failed to carry the positive momentum, erupted during the post-budget rally (from February 29 to April 12).
During the two aforementioned phases, the Indian economy continued facing headwinds such as not so good macro economic data, weakening of rupee against the US dollar, declining corporate earnings, rising NPAs of banks and overall gloomy scenario on global economic front, which mainly revolved around slowing US economy and Brexit.
Meanwhile, since the Union Budget, mutual funds (MFs) started profit booking in equities with heavy net selling in March and April. On the other hand, the foreign portfolio investors (FPIs) attempted to offer much need support to the market with net buying in March, April and May this year.
According to analysts, the MFs fund deployment took a hit in the rural economy related companies and adding to the woes, the rally in primary market kept the retail investors away from secondary market and particularly in the above mentioned sectors.
Slowing rally in agrochem & fertilizer stocks
The overall robust market sentiment post the budget saw stocks of agrochemicals and fertilizers manufacturers posting gains and experts believed that above normal monsoon will augment the upsurge further. However, many of these stocks reacted opposite of the market expectations and pared the gains achieved during the post budget rally.
It is pertinent to note that shares of Monsanto India skyrocketed 48% during the pre-monsoon rally as compared to a 3% rise in the post-budget rally. However, the upsurge is mainly due to a possible acquisition of Monsanto by Bayer CropScience at an estimated US$ 62 billion.
Automobile stocks in reverse gear
The platform was set by the post-budget rally for the automobile sector, even at a time when the sector struggled with falling sales numbers. The IMD predictions were clearly discounted by the the street in the wake of increasing uncertainty on the economic front, which saw stocks of some of the companies engaged in manufacturing farm equipments and two-wheelers slipping into the bearish grip from the bull’s back. Shares of tractor manufacturers succumbed to heavy selling pressure, while two-wheeler makers’ stocks suffered a major setback, despite the sector expecting good sales in rural due to above normal rainfall.
Plummeting pump stocks
Stocks of manufacturers of submersible pumps, one of the key farm equipments, have completely taken a U-turn since the IMD predicted above normal monsoon for this year. The post-budget rally propelled these stocks between 5-62%, while the pre-monsoon rally dragged many of them between 10-20%.
FMCG stocks in fast lane
A significant chunk of their revenues comes from the rural markets and FMCG companies have been betting big on rural demand. With good rainfall, the rural demand is expected to shoot up and the very optimistic outlook is cemented amongst the FMCG stocks during both the phases. In fact, barring a few, FMCG stocks have risen further in the pre-monsoon rally.
Amidst increasing volatility, some positive factors such as falling crude oil prices, increased power generation and steadily growing core sector have helped the overall market sentiment to be upbeat. The numbers themselves indicate a positive undertone for the overall market, but stocks related to rural economy tell a completely different picture. With the monsoon is about to knock the doors, it would be interesting to see how these stocks react to the rainy rally.
Ever since the IMD predicted the rainfall to be 106% of the Long Period Average (LPA) on April 12, the stock market barometer has gained 7.5% as of June 7, 2016. This market scenario indicates that the post budget rally in equities from February 29 to April 12 seems to be losing sheen from the day IMD came up with monsoon estimates. Increasing volatility is believed to be the prime factor responsible for stocks of companies fetching significant revenues from rural consumption, paring gains clocked during the post-budget rally on Dalal Street.
An analysis of return offered during the post-budget rally and pre-monsoon rally by stocks of companies linked to rural economy, including agrochem & fertilizers, Automobile & farm equipments, pumps and FMCG, clearly show that the pre-monsoon rally (from April 12 to date) has failed to carry the positive momentum, erupted during the post-budget rally (from February 29 to April 12).
During the two aforementioned phases, the Indian economy continued facing headwinds such as not so good macro economic data, weakening of rupee against the US dollar, declining corporate earnings, rising NPAs of banks and overall gloomy scenario on global economic front, which mainly revolved around slowing US economy and Brexit.
Meanwhile, since the Union Budget, mutual funds (MFs) started profit booking in equities with heavy net selling in March and April. On the other hand, the foreign portfolio investors (FPIs) attempted to offer much need support to the market with net buying in March, April and May this year.
According to analysts, the MFs fund deployment took a hit in the rural economy related companies and adding to the woes, the rally in primary market kept the retail investors away from secondary market and particularly in the above mentioned sectors.
Slowing rally in agrochem & fertilizer stocks
The overall robust market sentiment post the budget saw stocks of agrochemicals and fertilizers manufacturers posting gains and experts believed that above normal monsoon will augment the upsurge further. However, many of these stocks reacted opposite of the market expectations and pared the gains achieved during the post budget rally.
It is pertinent to note that shares of Monsanto India skyrocketed 48% during the pre-monsoon rally as compared to a 3% rise in the post-budget rally. However, the upsurge is mainly due to a possible acquisition of Monsanto by Bayer CropScience at an estimated US$ 62 billion.
| Performance of agrochem & fertilizer stocks | ||
| Company | Return in post - budget rally (%) | Return in pre - monsoon rally (%) |
| Insecticides | 23 | 9 |
| GSFC | 16 | 0.75 |
| Bayer Cropscience | 12 | 4 |
| Kaveri Seeds | 8 | 19 |
| Deepak Ferti | 8 | 1 |
| PI Industries | 4 | 12 |
| Monsanto India | 3 | 48 |
| JK Agri | -3 | 13 |
Automobile stocks in reverse gear
The platform was set by the post-budget rally for the automobile sector, even at a time when the sector struggled with falling sales numbers. The IMD predictions were clearly discounted by the the street in the wake of increasing uncertainty on the economic front, which saw stocks of some of the companies engaged in manufacturing farm equipments and two-wheelers slipping into the bearish grip from the bull’s back. Shares of tractor manufacturers succumbed to heavy selling pressure, while two-wheeler makers’ stocks suffered a major setback, despite the sector expecting good sales in rural due to above normal rainfall.
| Performance of automobile stocks | ||
| Company | Return in post - budget rally (%) | Return in pre - monsoon rally (%) |
| Escort | 34 | 2 |
| VST Tillers | 24 | 10 |
| HMT | 23 | -10 |
| Atul Auto | 22 | -2 |
| TVS Motors | 19 | -8 |
| Bajaj Auto | 12 | 7 |
| M&M | 1 | 11 |
Plummeting pump stocks
Stocks of manufacturers of submersible pumps, one of the key farm equipments, have completely taken a U-turn since the IMD predicted above normal monsoon for this year. The post-budget rally propelled these stocks between 5-62%, while the pre-monsoon rally dragged many of them between 10-20%.
| Performance of pump makers’ stocks | ||
| Stock | Return in post - budget rally (%) | Return in pre - monsoon rally (%) |
| Shakti Pumps | 62 | -12 |
| Dynamatic Tech | 46 | 13 |
| Roto Pumps | 37 | -19 |
| WPIL | 27 | -20 |
| KSB Pumps | 20 | 8 |
| Kisloskar Bros | 14 | -10 |
| Yuken India | 5 | 8 |
FMCG stocks in fast lane
A significant chunk of their revenues comes from the rural markets and FMCG companies have been betting big on rural demand. With good rainfall, the rural demand is expected to shoot up and the very optimistic outlook is cemented amongst the FMCG stocks during both the phases. In fact, barring a few, FMCG stocks have risen further in the pre-monsoon rally.
| Performance of FMCG stocks | ||
| Stock | Return in post - budget rally (%) | Return in pre - monsoon rally (%) |
| Godrej Consumer | 13 | 15 |
| Dabur | 10 | 17 |
| ITC | 9 | 12 |
| Marico | 9 | -0.7 |
| HUL | 5 | 3 |
| Colgate | -0.09 | 4 |
| Emami | -2 | 6 |
Amidst increasing volatility, some positive factors such as falling crude oil prices, increased power generation and steadily growing core sector have helped the overall market sentiment to be upbeat. The numbers themselves indicate a positive undertone for the overall market, but stocks related to rural economy tell a completely different picture. With the monsoon is about to knock the doors, it would be interesting to see how these stocks react to the rainy rally.
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