Why some key scrips bank on shower power

MUMBAI: Wednesday's forecast of a weak monsoon saw some key scrips open flat to negative. While SBI was down by about 4%, HUL, Hero MotoCorp, M&M and ITC all opened weaker, recovering later in the day following government's clarification on taxations of FIIs -seen as a much bigger concern for Dalal Street than rains over the next five months. Despite the late rally, SBI, Maruti, Tata Motors and Bajaj Auto closed lower.

A weak monsoon is likely to impact stocks of companies in agro and fertilizer sectors as they're impacted directly by the rains. These include tractor manufacturers, companies involved in irrigation and irrigation equipment like pumps, and fertilizer producers.

Apart from these sectors, stocks impacted indirectly by weak monsoon are FMCGs, two-wheelers and small cars.Weak monsoon leads to lower disposable income among people in rural areas.

Banks could get hit from two sides. On the one hand, they may be forced to waive off farmer loans. On the other, lenders may witness lower demand for loans from rural areas. Insufficient rains also mean lower demand for gold in rural areas, market players said. However, an extended spell of hot weather usually prompts punters to bet on a rally in manufacturers of ACs and small generators, they said.

Economists pointed out a weak monsoon may stoke inflation that in turn could impact corporate earnings and affect the economy's growth.According to a report by HSBC on the Indian monsoon in 2014, the dry spell had spiked food prices by about 20% in 2009.

A recent Crisil report said a deficient monsoon may shave 50 basis points off the expected 7.9% GDP growth for the current fiscal ending March 2016.All these have the potential to affect the current good run on Dalal Street, dealers said.

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