5 Stocks to Buy this Monsoon

Monsoon stokcs
by Nikita Bhoota 24/06/2021

Normal to above-normal monsoon is a sign of happiness for Indian equity markets. IMD recently predicted an above-normal monsoon 101 percent long-period average (LPA) this year. The stock market usually reacts positively to normal or above-average monsoon as it leads to increased farm production and increased demand from rural areas.

But, this year could be a little different as India has been facing several calamities for the past couple of months that have hampered economic growth and recovery. The recent addition to the ongoing second coronavirus wave is the Cyclone Tauktae and black fungus. While all these disasters keep the table busy, the promise of a good monsoon is a ray of hope that the economy will normalise sooner or later.

The monsoon has lot of significance as it not only improves agricultural activities or demand but also results in employment generation, push auto sales and demand for everything like cement and steel. Thus, from the equity market perspective, tractor, two-wheeler, auto/rural financing, fertilizer and selected FMCG companies will benefit from the good monsoon.

Below, we have discussed, 5 stocks that are likely to benefit from a good monsoon:
 

Company

CMP (Rs)

Target (Rs)*

Stop-Loss (Rs)

Upside

Hero MotoCorp

2,929

3,200

2,700

9.3%

Coromandel International

891

1,100

680

23.5%

Hindustan Unilever

2,480

2,650

2,300

6.9%

Mahindra and Mahindra

782

950

660

21.5%

Kaveri Seeds

731

820

650

12.2%

Source: BSE,5paisa Research, CMP as on 23rd June 2021
*Time Period: minimum 3 months.

Hero MotoCorp
Hero MotoCorp is India’s leading motorcycle manufacturer with ~51% share in the Indian domestic motorcycle market and ~35% share in the domestic 2W market (including scooters). The third year of normal monsoon with increased government spending augurs well for auto companies, such as Hero MotoCorp with large rural market share.

Coromandel International
Coromandel is the flagship company of the Murugappa Group and operates in fertilisers and other agri-input segments. It is India's second-largest producer of phosphatic fertilisers and is particularly strong in the South Indian states of Andhra Pradesh (AP) and Telangana. The forecast of normal rainfall will result in higher volumes in both the fertilizer and crop-protection segments. The company is targeting to increase its revenue share from the high-margin crop protection business with new launches and a diversified product portfolio. The rise in subsidy allocation by the Centre will improve its working capital cycle and generate higher free cashflows in the future.

Hindustan Unilever
HUL is the largest FMCG company with one of the largest footprints in terms of products and distribution networks. A good monsoon is positive for FMCG companies like HUL on account of potential strong demand due to increased farm production and higher disposable income. HUL gets a majority of its revenue from rural India and increased rural income will improve growth.

Mahindra and Mahindra
Mahindra & Mahindra (M&M) has major exposure to the rural economy through its tractor division where it is market leader and commands 41.2% domestic market share as of FY20. The tractor segment would see a quicker revival than other automotive segments post Covid-19 and M&M will be the key beneficiary.

Kaveri Seeds
Kaveri Seeds is one of India's leading seed producers, with a broad product portfolio that includes hybrids for cotton, corn, paddy, bajra, sunflower, sorghum and various vegetables. In addition, in its Microteck division, Kaveri markets micronutrients and organic bio-pesticides. A good monsoon will increase the demand of hybrid seeds, which will benefit the company.

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