 "Stocks likely to gain from poor rains")
Motilal Oswal Securities, in a note to clients dated June 26, said the season's cumulative rainfall is 40 per cent deficient and 85 per cent of regions have received either deficient or scant rainfall. Sowing for some crops has also been affected. "Advancement of monsoon has halted and is not expected to revive till end-June," said the Expert Speak report by Dipankar Mitra, based on an interaction with D S Pai, director, long-range forecasting division of the meteorological department.
Failing monsoon is negative for the economy, but there are some companies that do better when the rains play truant.
Dhananjay Sinha, head of institutional research at Emkay Global Financial Services, said while a lot of agriculture-based companies will not do well, investors could look to those which would help deal with poor rainfall. "The government may look for the variety of seeds that do well in scanty rainfall," he said.
Kaveri Seed Company produces drought-tolerant hybrids, including its flagship product called Jaadoo. The BT cotton hybrid of the company, resistant to drought, contributed 60 per cent of Kaveri's sales in FY13, according to a company statement. Others suggest that an extended period without rainfall would mean that the heat would also continue beyond the usual period, boosting demand for consumer durables. Products such as fans and coolers are likely to see better sales. Bajaj Electricals derives more than 50 per cent of its revenues from consumer durables, including appliances and fans, according to its last available annual report.
Finolex Industries, which manufactures PVC pipes and other related products used for irrigation, will benefit. It is an established brand name in rural India. The Street expects demand for irrigation pipes to go up. Its efforts to introduce more value-added products such as sprinklers will yield results because of the increased emphasis on managing water resources more efficiently.
Investors will also keep an eye on one of the largest players in the micro-irrigation space, Jain Irrigation, which generates a majority of its revenues from the micro-irrigation equipment used across the country for better utilisation of water. The company has a strong reach and its products are best suited for drought-like situations or poor monsoon.
The demand for generator sets, which are used in irrigation largely to draw water from remote places or deep areas, is also seen increasing. Kirloskar Oil Engines is one of the largest players in this space accounting for the biggest market share and reach in the country. It caters to a variety of needs for diesel engines and pump sets in the range of three-10 hp helping farmers in more than 25 applications.
With a good harvest last year and the recent increase, though marginal, income level of farmers is expected to be good, which could support their purchasing power.