labels: economy - general, investment - general
FMCG, auto stocks on caution list as monsoon fails to show upnews
Pradeep Rane
19 July 2004

With the monsoon playing hide-and-seek in various parts of the country, market analysts have put stocks in sectors like FMCG and auto on the caution list. Marketmen feel that if the monsoon fails to show up in the next two weeks, it'll have a negative impact on FMCG stocks like Hindustan Lever, Asian Paints, HLL, Colgate, Godrej Consumers and Asian Paints. Auto stocks like M&M, Punjab Tractors and Hero Honda will also feel the impact.

Broking houses are advising their clients that if the monsoon is delayed by more than ten days then investors should sell these stocks. Over the past couple of days, there has been selling in these stocks on the stock exchanges. The monsoon plays an important role in India's agrarian economy, as about a quarter of the GDP is based on the growth in the agriculture sector.

There are reports that the progress of the south-west (SW) monsoon has not been up to the mark. This could result in a poor kharif crop and affect the much-anticipated demand-pull from the rural sector. Statistically, the total rainfall in the month of June was 2 per cent below normal, but the lack of rains in July in most parts of the country has pushed up the deficiency to over 10 per cent.

According to analysts with a leading Mumbai-based broking firm, "a key concern is that the states accounting for almost 55 per cent of the kharif food grain production have received deficient rainfall and could be impacted if the current trend continues."

The lack of rainfall in the agriculturally crucial month of July is also a major worry. The sowing of almost all crops, barring pulses, has been adversely affected. Paddy, the most important kharif cereal, has been planted on only 4.78 million hectares, against 5.2 million hectares last year. Coarse cereals, which are almost entirely rain-dependent crops, have been hit even harder.

Among the commercial crops, sowing of oilseeds, including soybean and groundnut, has been disrupted in Madhya Pradesh, Maharashtra and Uttar Pradesh. "The next ten days are crucial and if the peninsular region does not receive adequate rain, the crop already sown would perish, resulting in a shortfall in production," a report said.

If there is sharp drop in rain levels, then the rural demand for FMCG products will suffer.

Another sector that could be affected is automobiles. A bad kharif crop can put pressure on tractor and jeep sales of M&M and Punjab Tractors. There are even concerns about motorcycle manufacturing companies, like Hero Honda, TVS Suzuki, as these companies will find it difficult to push volumes in rural India and will cut prices, hurting margins.

In case the monsoon fails, the demand for pump sets, PVC pipes and drip irrigation systems will zoom. If that happens, the direct beneficiaries would be KSB Pumps, Kirloskar Brothers, Jain Irrigation and Finolex Pipes.


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FMCG, auto stocks on caution list as monsoon fails to show up