Rural demand theme only silver lining in a gloomy stock market

Mumbai: Amid the volatility in stocks, as uncertainty continued to cast its shadow over Dalal Street, the rural theme-focussed stocks have offered a silver lining, and are likely to continue to the rally going ahead.

Shares of fertiliser producers, tractor makers, two-wheeler producers and other agri-linked companies have rallied in recent times on the back of normal monsoon forecasts, and as rural India has been less impacted by the Covid-19 crisis compared to the densely-populated urban counterparts.

“The rural sector is stepping into the void and clearly the Covid hit for rural India is weaker and hence in that broader context -- demand shifting from urban to rural,” Saurabh Mukherja, founder & CIO and Marcellus Investment Managers.

“The overall economy obviously has struggled through the lockdown but as we gradually go into the unlock world, there are some demand shifts and perhaps the most striking of these is the resurgence of rural India as Covid hits them less and the government’s relief program benefits rural India,” Mukherjea told ETNow in an interaction.

A good monsoon season has also helped boost demand for fertiliser and agri-input stocks. Monsoon rainfall has been 19 per cent above normal and 83 per cent of country seeing normal or better rains.

Fertilizer stocks such as Nagarjuna Fertilizers and Chemicals, Khaitan Chemicals & Fertilizers , Basant Agro Tech (India) , Coromandel International, Shiva Global Agro Industries and Fertilisers & Chemicals Travancore scaled 52-week highs in June, and logged 22-73 per cent gains for the year to date. Agri Sciences company PI Industries, has risen 9 per cent for the year to date.

In contrast, benchmark 30-share Sensex is still down about 8 per cent on a year-to-date basis.

"Good reservoir levels, strong start to the monsoons, good Kharif sowing and hike in MGNREGA allocations have lifted rural spirits,” Motilal Oswal said in a note on July 3.

The brokerage pointed out that retail fertilizer spending stood at almost 2 times in May as compared to a year ago.

Two-wheeler makers such as Hero MotoCorp and tractor makers such as M&M and Escorts have also seen an uptrend in recent times. While shares of Hero Motor Corp rose 19.17 per cent over the last one month, M&M rose 9.39 per cent in the same period. Escorts has risen 8.79 per cent over the last one month, and is up 85 per cent for the year to date.