It is time to nibble into monsoon-related stocks now that the expectations of an above average rainfall this season stand strong. RBI governor Raghuram Rajan also said he would consider more rate cuts if monsoon pans out to be good as forecast by India Meteorological Department and Skymet.
However, Deepak Shenoy, Founder, Capital Mind told ET Now it is too early to put money in monsoon-related stocks.
"I think from a monsoon perspective, it is a little early to put a lot of money on to the monsoon related stocks but I think if rural demand continues to be strong, then stocks like Hero Motocorp, basically the two-wheeler pack will benefit a lot," said Shenoy.
While caution is necessary before riding on monsoon rally, here are six stocks, which experts feel may perform better in the days to come:
Vikas Gupta, CIO, ArthVeda Capital
1) Hero Motocorp
The company gets 45% of its volumes from rural segment, hence a better monsoon after two successive monsoon failures will be a booster to rural sales. Budget 2016 push on rural economy is also a big positive for the stock. Hero Motocorp is a high quality stock available at attractive EBIT yield of 6 per cent with zero leverage.
2) Rallis India
The company has a wide range of offerings in the agricultural inputs space, on top of a vast distribution network, and is a familiar brand among the farmers. The stock of Rallis is Available at an attractive EBIT yield of more than 6 per cent with little debt on balance sheet, and a strong superior capital allocation performance in the past.
3) Mahindra and Mahindra Financial Services
The company is set to benefit from the uptick in demand for financing from rural areas, given its focus and offerings in the rural space. Surge in sales of tractors, utility vehicles and two-wheelers in the rural markets is likely to push demand for M&M Financial Services loan products. The company also has a good history of superior capital allocation, and is available at an attractive P/E multiple.
Jimeet Modi, CEO, SAMCO securities
ITC stock is available at lower end of 5 year valuation matrix due to negative stance of the government towards the industry. Because of such pessimism, the stock is available at reasonable valuation. For long term investment, these are ideal situations for above average returns when investments are made during such times.
5) Two-wheeler stocks (Bajaj Auto, Hero Moto and M&M Finance)
The two wheeler segment looks promising given that revival of the rural economy will trigger the incremental growth as last year base was low, which is the key reason that will drive above average returns in the stocks.
Bajaj Auto, Hero Moto and M&M Finance which also have great potentials to race ahead in case the rural economy thrives on the success of monsoon this year. All of these stocks have the potential to deliver 20 per cent and above in a year's time frame.
6) Dhanuka Agri, Rallis India, Bayer Crop
The stocks that can give above average returns could be Dhanuka Agri, Rallis India and Bayer Crop. All these companies have great brands, strong distribution networks and efficient operations, inspite of previous two years of bad monsoons these companies have still maintained their operating efficiencies and protected their market share. Hence once the monsoon sets in, they will be able to capture the incremental growth.