The Indian Meteorological Department (IMD) has predicted an above average monsoon this year, after two years of very dismal rainfall, which has led to rural distress, among poor farmers.
"There was only a 15 per cent chance of the monsoon being 'below normal,' defined as monsoon rains being less than 95 per cent of the normal," Skymet had said.
With the monsoon being above normal, there are some companies that are likely to benefit.
Among the many, here are a few we have short listed. We are not recommending investors to buy the stocks, based on fundamentals. All we are saying, is that these stocks could benefit based on good monsoons. Some of these stocks are already fairly valued.
Mahindra and Mahindra
Mahindra and Mahindra is the largest tractor player in the country. In fact, the "Mahindra" tractor brand is the largest selling tractor brand in the world, if one goes purely by numbers or volumes.
A good monsoon, means higher disposable income of farmers and hence a better demand for the company's tractors.
The shares are up sharply on Wednesday, after the IMD predicted a higher than average monsoon.
Of course, the company has significant presence in SUVs and other categories, including two-wheelers and farm equipment.
Coming to fundamentals, the company could report an EPS of around Rs 50 for FY 2016-17, which translates into a price to earnings multiple of around 26 times. This is not really cheap.
The price to book at 4.3 times and the dividend yield of less than 1 per cent, are also not very attractive.
Swaraj Engines is a supplier of tractor engines to the popular Swaraj Brand, formerly Punjab Tractors.
A better monsoon forecast means better demand for the company's engines. There are several other positives for the stock. It is a debt free company and operates at record capacities.
The dividend yield on the stock is a decent 3 per cent and the company is slated to announce dividend on April 26. In terms of price to earnings multiple, the stock is slightly over priced at almost 28 times price to earnings multiples.
The stock currently trades at Rs 1096.
Rallis India is a part of the Tata Group and has presence in agro inputs like Fertilizers and seeds. It has a solid brand equity and a great marketing network.
In fact, according to the company its network today covers 80 per cent of India's districts with a dealership network of more than 1500 and 40,000 retailers. This has enabled the company gain a strong foothold in the market.
Like most other stocks that gain from good monsoons, the shares have seen an up tick in the last few days.
Again like most of its peers, the stock is not exactly the cheapest. With a price to earnings ratio in excess of 30, the shares are already highly valued.
It is important to note, that these stocks have already run-up a fair bit.