IMD retains above normal monsoon forecast; here’s how it can play-out on D-Street

Recently, the India Meteorological Department (IMD) announced its stage-2 long-range forecast for southwest monsoon 2024. The department has retained its outlook of an above-normal monsoon this year. It expects rainfall in the upcoming monsoon to be at an eight-year high of 106% (with an error margin of +/-5%) of the long-period average (LPA) of 870mm for the four-month period from Jun’24 to Sep’24. Now as the monsoon has already set in over Kerala and is reported to advance into most parts of Northeast India, here is how analysts’ view it to play out for the D-Street.

Monsoons play a very significant role in the Indian economy as a sizeable population of India, approximately 40% of the labour depends on it, notes  Aamar Deo Singh, Senior VP - Research, Angel One. 

Seconding Singh’s thoughts, Rajesh Sinha- Sr. Research Analyst- Bonanza Portfolio says good monsoon helps in boosting agricultural production, controls inflation, increases rural income, etc. A good monsoon is always beneficial for the Indian economy due to its profound impact on agriculture, water resources and overall economic stability, he adds.

Sectors to benefit

Prashanth Tapse- Sr. VP- Research Analyst, Mehta Equities is of the view that sectors like FMCG, Auto especially 2-wheelers, fertilizer, PSU banking stocks would see action due to IMD retaining above normal rainfall. Meanwhile Singh believes an above normal-monsoon has a positive impact on almost all sectors, but specifically the agri-related, 2-wheeler sector and the FMCG sector.  

Stocks to gain due to favourable monsoon

The likes of TVS Motors, Bajaj-Auto, Britannia, HUL, Marico & Dabur, to name a few, are to gain from an above-normal monsoon, as the spending power of the agriculture based population witnesses an uptick, noted Singh. Tapse on the other hand, maintains a neutral viewpoint currently on the fertiliser segment and from the 2-wheelers space is bullish on Hero MotoCorp, while in the FMCG space he likes Dabur and Tata Consumer. Also, he sees good credit demand to be fuelled by above normal monsoon. Consequently, he is optimistic on Canara Bank and PNB.

Sinha is of the view that investors can keep an eye on stocks like UPL Ltd., Tata Chemicals and Coromandel International from the Agro-Chemical & Fertilizer sector. In the FMCG space, Hindustan Unilever, ITC, Dabur India can be considered while Mahindra & Mahindra and Hero MotoCorp will be in focus in the auto sector, he adds.

What should investors do?

Singh advises investors should enter auto stock on corrections as they are already up by a significant margin. Furthermore, for the FMCG space that has been the laggard in the current bull run, he suggests investors can have a positive view from a  long-term perspective.

Nevertheless, Tapse believes that the IMD expectation is already discounted in the market and prices, and hence upside would be limited from here.