Russia Ukraine crisis boosts Rural Demand
Russia Ukraine war has created a silver lining for the Indian agriculture sector by disrupting the global Agri commodity chain. Ukraine is among the largest global exporters of wheat (10%), Sunflower (47%), barley (17%), rapeseed (20%), and maize (14%).
Russia also has a strong presence with global exports of 25%, 18%, and 14% in Sunflower, Wheat, and Barley. Currently, the prices of wheat, Mustard, barley, Cotton, and Soybean are up by 14%, 30%, 76%, 61%, and 36%. The Rabi crops like wheat are expected to give an incremental profit of Rs.302 billion and major crops of about Rs.578 billion, an increase of 32% YoY.
CY-2021 had seen 3rd consecutive normal monsoon in India which boosted the crop output and farm income levels. Skymet has predicted 96-104% of LPA of monsoons in 2022 which will boost rural sentiments in the coming months. The harvesting of the Rabi crop amidst firm Agri commodity prices and the timely onset of monsoons will revive rural demand in the coming months.
The FMCG sector is suffering from the slowdown in Rural demand for the past 2 to 3 quarters. The rural recovery will lead the sector as rural India is currently witnessing a decline in volumes.
The Automobile sector has been reeling under a slowdown due to component shortages and high fuel prices. The stabilization of fuel prices, component availability, and rural sentiments will improve demand for Tractors, 2 wheelers, and entry-level PV’s in the coming quarters.
High farm income will boost demand for Fertilizers and Agrichemicals incoming season.
As farm incomes improve, demand for credit would improve while also positively impacting recoveries. Hence rural portfolio profitability could enhance led by not only higher loan growth but also lower credit costs.
The slowdown in rural demand from the last two quarters was not led by poor income but by a cautious stance toward conserving cash in rural India due to the severe impact of the 2nd Covid wave.
For agricultural households (48% of rural households), Farming and Dairy are the biggest income components contributing roughly 52% to overall income. Overall Agri income is about 30% and dairy is another 7% of total rural income.
Agricultural households have 22% higher income and 15% higher expenditure than non-agricultural households. Although there has been a slight dip in unemployment led by rural, Rural wages for both men and women have been rising steadily and have gone up by 5% in the last 2 years. As a lot of rural labor works in nearby cities, Various Infra initiatives of Govt will increase employment opportunities.
An increase in Agri exports of 30% YoY in Jan’22 is positive and is an indication of a likely uptick. Post Ukraine crisis the demand for wheat in the export market has ballooned and prices have moved up. The higher exports of several commodities like wheat, barley, etc. are expected where Russia and Ukraine were major players. This will boost farm incomes in India.
Gold prices in Mar’22 are up 15%YoY, 23% since Mar’20, and an exorbitant 61% since Mar’19 (pre-covid). The sharp and sustained rise in gold prices will create a wealth effect and give comfort to the farmers to spend. Gold, bank deposits, and real estate are major instruments of savings for the rural population.
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