By Ruma Dubey

The stock market is capitalist. That’s a known truth. When there is a pandemic, stock price of companies making the drug shoots up.  For the market, every adversity is an opportunity. But therein lies a message too – look for the silver lining in every cloud. No doubt the rain deficit has come down last week from 34% to 21%, with rains picking up in July across the country. Yet the point here is that the rains have come when sowing season across the country have gone by. Kharif planting improved over the last weeks but was still down by 45% until the end of last week (YoY). Thus rains might pick up further but how much will be able to harvest?

So what is the silver lining in the current story of rains playing truant? We take a quick look at the sectors which could probably benefit, those which could be hit and those which will be unaffected. Currently India is gripped in ‘Modi fever’ but as we have said earlier too, how can any new Govt make do for shortfall of rains? Here we assume that rural income will slump and India Inc, which has been betting big time on buying from rural India to prop up the economy will suffer. With lesser money in the hands of the villagers, naturally buying will come down.

Sectors that could be affected:

FMCG is the first which comes to mind. There could be fall but not as precipitated as anticipated as people would not stop buying all together. If employment is indeed guaranteed as promised by the Govt, this sector might not take as bad a hit. So we need to keep a watch on ITC, Hindustan Unilever, Dabur, Marico, Nestle, P&G, Colgate. But the real problem for them is the soaring price of commodities, which will increase their overall cost and thus put pressure on margins. With demand slack, they cannot simply afford to pass on the increased costs to the consumers. So they will have to rework their product pricing and probably concentrate on getting higher volumes on low cost items. FMCG companies with huge cash reserves and wide established distribution networks would do well. And that means ITC, HUL and Nestle.

Yes, what people could put off buying are two wheelers, cars, tractors. So companies like Bajaj Auto, Hero Honda, even Maruti, Escorts, Mahindra & Mahindra, could see fall in demand. Consumer durables, pesticides and fertilizers would also see a fall in demand.

PSU banking is another sector which could see some uncertainty. Loan waiver does not seem a possibility as the Govt cannot simply afford it but yes, concerns over NPAs could once again get revisited. In times of such crisis, PSU banks do provide various special credit packages, including rehabilitation measures and other relief, whenever there is severe repayment crisis due to drought or such other calamities. They might also need to provide cheaper finances at the behest of the Govt.

Sectors that could gain:

Obviously, the biggest gainer would be the crops which have had bumper harvests. Sugar is one crop which is going to reap a bountiful harvest. Sugar prices have already started showing signs of northward movement since Feb. Currently the price of most of the commodities is low but if rain does play truant, most prices will rise, including rice, tea and coffee.

Then there are sectors which would continue, irrespective of the drought.

One such sector is IT and also power. If the Govt continues with its thrust on infra development, then we can expect capital goods, cement and infra companies to also to hold on. Drip irrigation could take off further to combat further effects of drought. Avoid power stocks which have higher portfolio of hydro power.

The sub-text to all these - if rain does play truant, RBI is not going to bring down rates in any hurry; instead we should brace for more rate hikes.

We, living in this generation of smart phones and mobile apps, where everything is at the tip of our fingers, cannot do anything about poor rainfall. Surely that means that the notion, that we are in control, is so unreal, so flimsy. The power of Nature, no technology, no mankind innovation can ever surpass.