Want to bet on rural India ahead of monsoon? Prabhudas Lilladher suggests 12 stocks

Normal monsoon rainfall is beneficial for economic growth as it strengthens hinterlands, which are mostly dependent on rains for irrigation. Earlier, the year 2021 had seen the third consecutive normal monsoon in India which boosted the crop output and farm income levels. Of late, private weather forecaster Skymet predicted 96-104 per cent of LPA of monsoons (normal rainfall) in 2022 which will boost rural sentiments in the coming months.

Market watchers also foresee robust growth in rural India considering the spike in commodity prices due to the Russia-Ukraine crisis. Brokerage Prabhudas Lilladher said, “We believe harvesting of Rabi crop amidst firm agri commodity prices and the timely onset of monsoons will revive rural demand in coming months.”

It further added that the Ukraine war has created a silver lining for Indian agriculture by disrupting the global agri commodity chain. Ukraine is amongst the largest global exporters of wheat, sunflower, barley, rapeseed and maize with a share of 10 per cent, 47 per cent, 17 per cent, 20 per cent and 14 per cent of global exports.

Russia also has a strong presence with global exports of 25 per cent, 18 per cent and 14 per cent in sunflower, wheat and barley. “We believe Rabi crops like wheat will give an incremental profit of Rs 302 billion and major crops around Rs 578 billion, an increase of 32 per cent YoY,” Prabhudas Lilladher said, adding its channel checks suggest that slowdown in rural demand from last two quarters was not led by poor income, but cautious stance for conserving cash in rural India due to severe impact during the second Covid wave.

There are expectations that recovery in rural India will boost sentiment for FMCG, automobiles, agrichemicals and financial sectors.

“High farm income will boost demand for fertilisers and agrichemicals in the coming season. In addition to this, 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,” Prabhudas Lilladher said.

Considering the present market scenario, the brokerage suggested players like Hindustan Unilever (HUL), Dabur India, Mahindra & Mahindra, HDFC Bank, State Bank of India, Ultratech Cement, Shriram Transport Finance, Crompton Greaves Consumer Electricals, Emami, Safari Industries, Rallis India and Bayer India among top rural picks.

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