Q3 HOLDS THE PROMISE OF A BOUNTIFUL KHARIF HARVEST
By Ruma Dubey
For us city dwellers, where pulses and vegetables means going to the market and getting it, what could probably be the significance of rabi and kharif crops? Do they even mean anything to us?
Well, if it does not mean much, it should! Because it is these crops which will decide all the economic data which we track sitting in the comfort of our homes/offices. And it is these crops which will decide the swing of the stock market.
Rabi or winter crops, are sown between October to February and harvested by June. And the most important rabi crop is wheat. On the other hand, Kharif crops are sown during April-July, and harvested by October, with the most important Kharif crop being paddy.
Naturally, based on the timeline, we will now wait and see how the kharif crops have fared. The first advance estimates from the Ministry of Agriculture suggests a bumper harvest – kharif output is expected to be higher by 9% (YoY).
But two states have suffered – Karnataka and Gujarat had a deficient rain; barring these two, rest of India has fared well. Pulses output in the kharif season was estimated to be 8.7 million tonnes, 22% percent more than the earlier record of 7.1 million tonnes achieved in 2010-11, and 60% up (YoY). Oilseeds production is expected to be 234 million tonnes, 4% higher than the record production of 226 million tonnes in 2013-14.
On the other hand, two cash crops have suffered. Cotton was planted on 83% of cropped area and production is expected to be 11% lower. Sugarcane is the other crop – cropped on 90% area and production is expected to be just 82% of previous 2010-11 and 2013-14 record production of 360 million tonnes. This again spells good news for stock markets where textile and sugar companies, after a long span of surplus and lower prices, will see a reversal in their fortunes.
On the Rabi crops, preliminary reports received from the States suggest that the total area sown as on 11th November, 2016 stands at 146.85 lakh hectares as compared to 126.71 lakh hectare this time in 2015. Wheat has been sown/transplanted in 25.72 lakh hectares, rice in 9.68 lakh hectares, pulses in 49.24 lakh hectares, coarse cereals in 20.17 lakh hectares and area sown under oilseeds in 42.03 lakh hectares. Clearly, going by the trend of normal monsoon and water reservoirs having 25% more water than last year, this season might also yield a rich yield.
For us in the stock markets, kharif output should send the indices soaring as a bumper harvest has a direct link to buying power in rural India. The sales numbers of tractors, agri machineries and other inputs have reported a surge. Mahindra & Mahindra reported whopping 61% surge in October tractor sales while Escorts reported a 58% jump in sales.
Apart from a good harvest, agriculture wages have never been this good, in fact were doubled up last week. The Labour Ministry fixed the minimum wage for unskilled agricultural labour in C-class towns in the central sphere at Rs.350/day. This new wage is effective from 1st November and quite a jump up from the rates prescribed under the national floor level minimum wage, which is Rs 160 per day.
Does this mean more spend on FMCG products? A recent survey by Chrome Data Analytics & Media (Chrome DM), a primary research and data analytics company showed a very good picture - a rural household spends Rs 504 a month on FMCG products, roughly 18% of the total monthly budget of Rs 2,800. Of this, food products contribute a major chunk at 55% or Rs.280. Skincare and cosmetics are still a luxury with a monthly average spend of Rs.36.
And what did come as an eye-opener was that more than half of India’s stock of consumer durables and two-wheelers are now in rural India. Bikes, trucks, tractors and cars will see a spike up in demand. Also, rural India accounts for more than 40% consumption in major FMCG categories such as personal care, fabric care and hot beverages.
Every company, in the FMCG, auto, consumer durables, are all targeting aggressive marketing drive in rural India. And a rich harvest will surely means richer harvest for these companies. And this in turn means good fortune for those in the stock markets too. Q2 was not exactly trailblazing but Q3 numbers for these agri companies and FMCGs are expected to be much better; yes there will be the effect of demonetization but there is no doubt that farmers will have money in their pockets and once this fear subsides and things get normalised, demand for white goods will go up. Thus the efffect of a bountiful harvest in the stock markets will be felt by Q4 only.
Thus it is not just the farmers who should be happy, we all should be happy and thank the Gods for a bountiful harvest!