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Auto, Agro Earnings Exodus?


The investor who is impulsive is rarely a winner, so having patience and keeping cool always pays in the long run eventually. The steep fall is expected in the rural demand is bound to erode the earnings for those firms which are on mega dependence on the farm income, especially the shares of consumer dependent companies, so also the automobile sector related to agriculture in particular will perform well below expectations as the prime reason being the intermittent and below average monsoon which is going to hit their earnings. The FMCG sector is not going to be spared either as close to 40% of the FMCG consumption is in the rural areas and this is bound to escalate the prices of the raw material and as at the moment the stocks of the FMCG are trading at higher valuations and so a downslide is called for by the September end as the markets will take their stance and call on the earnings estimate by the month of July, and just wait and watch for the news updates on the monsoons before betting on the sheer opportunities arising from these varied opportunities following the news outflows, the stocks of certain companies such as Hero Motocorp, M&M, HUL, Dabur are also going to be effected because in their income the agriculture plays a significant role and that a part of their fortunes are tied to the agriculture sector and the contribution of the rural populated consumers to their sales figures is very significant as close to 50% of the two wheeler volume is contributed by the rural India. Due to the EL Nino the poor monsoon will affect negatively both the rural income as well as the rural consumption which will adversely hit the industrial demand of the companies involved in the FMCG, automobile sector and the consumer durables too.

At the moment almost half of the NSE 500 stocks have slided below their 200 day moving averages (DMAs) and if the fall is below the 200 DMA levels only goes on to indicate that the new buyer of the index stock is actually paying the lower price than the average price paid in the last 200 consecutive days and rightly so the stocks at the moment are correcting for the reasonable reasons like the forecast of the below average monsoons, compounded by the increase in price of the crude, to add to it the poor corporate earnings and the markets are hovering around the oversold region so at the moment the structure of the market as well as the sentiments are pointing down.

As an investor who are on the hunt of a pullback than buying of the L&T, capital goods, banking, telecom, the cement and some blue chip companies in their portfolio range will be sufficice, and also buy nifty and use the opportunity to ride the wave of the larger uptrend. 

The shares of the automobile as well as the consumer oriented will be under some pressure of the sorts and so also the automobile sector two wheeler and the tractor segment stock prices in particular will feel the heat of the poor monsoon temporarily but will recover later on as the ruralites have diversified to other sources of income. So just hang on tight, quit the panic state do not be impulsive, just wait, watch and let go.