HUL, ITC, Hero , Bajaj Auto among 8 stocks in FMCG and Auto space to gain focus amidst above normal monsoon forecasts

Above normal monsoon predictions made by IMD (India Meteorological Department)  recently and  by Skymet a few days earlier should lift sentiments for rural economy related stocks say analysts, though progress of monsoon, timing and distribution of rainfall will remain watched for.

The demand has remained sluggish for the fast moving consumer goods (FMCG), automobiles , agri- commodities and few others amidst weak monsoon activities last year The reservoir levels also very low now. Hence normal monsoon forecast has started lifting sentiments.

The benchmark Nifty-50 index though saw steep decline of up to 0.8% on Tuesday before closing 0.56% lower on worries  pertaining to geopolitical tensions and weak global cues. Nevertheless Nifty FMCG Index and  Nifty Auto index  ended with gains of up to 0.43% . 

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“The forecast of above normal monsoon augurs well for the economy and stock markets. This will enable a 7 % GDP growth for FY 25 with corporate earnings growth of around 14 %" said *V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services. The Good monsoon will lift the rural economy and improvement in rural income will boost demand for consumer staples, which, in turn, will boost the bottom line of FMCG companies, added Vijayakumar.

Deepak Jasani, Head of Research at HDFC Securities also said that the normal monsoon predictions are positive and have now been discounted by the markets. It is the worries of geopolitical front that are adding to Risk off sentiments around the world and will weigh on indices.  However  gains seen in FMCG index and autos may have been supported by normal monsoon predictions, said Jasani

Nevertheless these are still early days and all eyes will be on progress of monsoon. The timing, distribution of monsoon also play an important role in pick up of agriculture activities.

Sectors and stocks to watch for -

Automobile Sector- The Tractor sales and entry level two wheeler and even entry level passenger vehicle sales have suffered significantly during FY24 amidst weak demand. The recovery in rural economy and the pickup in monsoon activities thereby can lift sales of tractors and two wheelers respectively.

Two segments that will benefit are two-wheelers and tractors, said Vijayakumar. Hero MotoCorp , TVS Motor Company , Bajaj Auto and Mahindra & Mahindra are the stocks to watch for as per him.

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FMCG Sector- The FMCG sector has seen a tough FY24 with volume growth remaining impacted. Weak rural demand  amongst one of the important factors.  In the recently concluded January- March quarter (Q4FY24), demand for FMCG products faced ongoing challenges, dampening volume growth. As per Elara Securities there was no meaningful change in the rural growth trends. It is the factors, such as low farm income and the rise of small regional competitors, which are adversely affecting larger companies, said analysts.

Hence normal monsoon leading to a boost in rural economy are important for the sector. A normal monsoon definitely will be crucial to drive growth for the FMCG companies, said a Head of Research at a domestic brokerage.  

Hindustan Unilever , ITC Ltd,  Dabur India and Godrej Consumer are the stock to watch out for as per Vijayakumar.

Agro chemicals- While good monsoon activity increase the usage of pesticides, herbicides and boost demand for fertilizers and seeds, monsoon predictions certainly bode well for the manufacturers. 

Nevertheless for agro chemicals its the high channel inventories and weak global demand that are putting pressure on earnings, pointed out a Head of Research at a domestic brokerage. Hence global demand scenario and lower channel stocks will be crucial for most companies with international exposure.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions

Two segments that will benefit the most are two-wheelers and tractors.

HUL, ITC, Dabur, Godrej consumer, Hero Motors, TVS Motors, Bajaj Auto and M&M are the stocks to watch.p

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 Two segments that will benefit are two-wheelers and tractors.

HUL, ITC, Dabur, Godrej consumer, Hero Motors, TVS Motors, Bajaj Auto and M&M are the stocks to watch.p