What El Niño Means For FMCG Stocks & Rural Demand | Market Panic Or Buying Opportunity

本站添加: 2026-06-03

[00:00:00]We're going to be having a conversation with GP Sharma of Skymet and of course Avneesh Roy, executive director research at Novama Institutional Equities will also be joining us. But before we get to that conversation, I want to invite Mahima to set it up for us. Mahima, where is this concern coming from and how is it now reflecting in the way the stocks of certain companies are reacting?

[00:00:22]>> Right, so Tamanna, as you rightly mentioned, you know, we were expecting a below average monsoon, but on Friday, you know, the IMD estimate suggests that now the rainfall is expected to be around 90% of the long period average versus that of a 92% earlier. And that's probably the reason why we've seen pressure in a lot of FMCG names in the last 2 days. Now, if you take, you know, a couple of stocks that have, you know, strong exposure in the rural area like Colgate, HUL, Jyothy Labs, Marico, Britannia, Godrej Consumer, etc. All of these companies have rural exposure anywhere between, you know, 30 to 45%.

[00:00:57]Now, >> [snorts] >> lower rains that means lower farm income and that will overall impact consumption demand in the rural area. Last three, four quarters we've seen rural demand backing of the entire consumption space, but this could probably hamper that.

[00:01:11]Now, you know, this could also have a mixed sentiment because something like an Emami, strong summers, Dermicool, Navratna, etc. will have a positive impact, but at the same time uh almost 40 to 45% of their revenue comes from rural area, so that aspect could see pressure. For Dabur, around 15% of their revenue comes from juices, so that is a good part because summers will be strong, but over 50% of their revenue share comes from the rural market, so that could impact Dabur.

[00:01:36]Same with Tata Consumer and ITC as well.

[00:01:38]So, you know, there's mixed sentiment where strong summers could also see urban demand picking up, but this could definitely hamper rural demand going forward. So, this is the overall view of what weak monsoons mean for the consumption space.

[00:01:53]Okay, I want to go across to GP Sharma first.

[00:01:58]Mr. Sharma, how definitive are the predictions of monsoon being poor right now? Just trying to understand technically can this really change?

[00:02:06]Or are we now set for a weak of monsoon and that is now very clear?

[00:02:12]>> Uh thank you so much. It is a little early to go for the definitive okay assessment as to how the monsoon is going to be.

[00:02:21]In view of the strong El Nino, yes, yes, the market sentiments everywhere it is like this that it's going to spoil the monsoon. And as the El Nino has done in the past also, yes, the track record is it corrupts our monsoon. All right, but then there are exceptions and the the normally the super El Nino that thing which is going on that that is going to impact our monsoon adversely, very badly. Uh that is not so. Okay, I as I say it is just in the month of month June has just started now. Okay, El Nino has not yet started and so neutral conditions are still prevailing. It is still about a month to go for the El Nino to possibly set grounds to set in over the Pacific Ocean. Okay, so I think it's we still need some time to watch at least the start of the monsoon though it is not looking very healthy. Okay, the monsoon start itself department has said that El Nino >> I I just want to ask Mr. Sharma, can this reverse? Have you seen years in which this reversed?

[00:03:32]>> Uh reverses not possible. I don't think so. It has It has happened only one or two occasions when the normal rainfall has been there with the super El Nino with the strong El Nino. Yes, 1997 there have been cases, but then the those are very few.

[00:03:50]Uh that from 1950 onward you take there are of six of super El Nino and the two cases were normal. Okay, out of six two.

[00:03:59]So that's a ratio like and as we have seen in the past the data supports that the monsoon is to be washed very carefully and super El Nino yes definitely it has a track record of impacting monsoon. But it's a little early to go for revision but the IMD they have a tradition that they give a forecast main forecast revise it at May end even a June and also some figures will be given but then at Skymet normally what we do is we give a post correction if required at least watch the monsoon for some time maybe halfway through if required we track that. Yeah, that's it.

[00:04:32]>> Okay, so you're also seeing a super El Nino which I presume is worse than an El Nino.

[00:04:38]>> It is the stronger stronger. You see it all depends on the Pacific temperatures temperature anomalies which we call it as from the normal when the temperatures are 2° C or more then we call it as a super El Nino. Though super El Nino is not a scientific term at all it's a possibly term coined by media otherwise very strong El Nino is the term which we normally use when the temperatures exceed 2° C. Okay, that's going to be the case this time. It looks like yeah.

[00:05:05]>> Okay. Okay. So so you know I just wanted to get that context in place before I come to Abneesh Roy. Abneesh thank you so much for joining in. So now that it seems fairly clear that we are going to have a weaker than possible monsoon weaker than regular monsoon and and really that's the worst case scenario with everything else panning out. What is the impact that you see on the whole basket of companies that are exposed to rural consumption?

[00:05:34]>> Yeah, thanks and good morning. I'll agree with the previous participants observation on El Nino. I think we are just mixing up recent stock correction too much with El Nino. I don't think El Nino is impacting Q1 or Q2, it will essentially impact H2. Yes, there will be a real impact. Uh as the previous participants said, we have to be concerned, but it is quite early. The current market sell-off is more because of the FI is selling, crude coming back, geopolitical. It is not El Nino at all. Uh except I think IT index, most other sectors have corrected. It is all linked to that. My sense is Q1 Q2 in fact should be quite strong for almost all the consumer companies because of the price hike, there is a freebie being distributed by every state government, right? Even Bengal now is giving 3,000 rupees. So, the new government in Bengal is giving the earlier governments which came to power recently, Bihar, Maharashtra, Madhya Pradesh, Tamil Nadu, you name it. Those are also there. So, it is not so easy that okay, if El Nino is there, then FMCG will correct, FMCG consumption will go down. It doesn't work that way. Yes, in H2 there will be a concern, but we also need to see what happens to crude oil in H2, what happens to the freebies because clearly coalition politics is a reality and governments will be quite careful that too much of stress on the rural economy is not there. So, we should not see just one facet, we have to see all the factors. So, I'm quite positive on many companies in consumption. So, Nestle, Marico, Asian Paints, Berger Paints, Pidilite, these will see very strong results in Q1 Q2. Even the summer categories which you just highlighted El Nino is yet to come in, but if you see in Q1, we have seen very high temperature in many parts of the country. So, Varun Beverages, Emami could also see benefit, Dabur could see benefit as you rightly highlighted. So, it is not gloom and doom and El Nino frankly will impact in H2, not now.

[00:07:32]>> But but then the point that if you are saying that H1 will be impacted because of the factors like uh crude coming back, etc. And because the market starts to look 6 months out, if the monsoon were to have an impact in H2, is it therefore going to be a case that FMCG will stay under a cloud for the next 6 to 9 to 12 months?

[00:07:55]>> No, these days people don't bake in 6 months in advance. These days the near-term results are very important. I will say let's go quarter by quarter. If you see most of the FMCG results which were as quite strong in Q4, those have done quite well. So, if you see Nestle, Marico, Asian Paints, Berger Paints, Pidilite, those have done quite well. So, my sense is Q1 results and Q2 results will what will matter much more rather than H2. If we start factoring in H2, then where what about the Q1 strong results? So, I will say that yes, H2 there will be a concern, but my sense is there will be correction in crude oil at that point of time, right? No one is expecting that this geopolitical issue will continue for 1 year. So, I think multiple moving parts, we can't just pick up that okay, El Nino is there in H2, so now the stocks will start correcting. What about the crude correction which will happen in H2? So, I will say in Q1 the stronger results will do well from a stock perspective also. So, Nestle, Marico, Asian Paints, Berger Paints, and Tata Consumer, Pidilite, I think these are the stocks where they will have more conviction even from a Q1 Q2 perspective. I think El Nino is too early. We are just mixing up two three things and just saying that okay, it is El Nino, it doesn't work that way.

[00:09:08]>> Last three four days the file correction has been there, the crude oil has gone up. So, you have to do like that rather than just making it so simplistic in my view.

[00:09:18]>> No, no, so let's let's not make it simple, but let's try and make it as simple as we can for the sake of the conversation, Abneesh. Let's assume Q1 has that impact, and at that point of time the sentiment of uh uh uh an El Nino, you know, extreme El Nino or what have you, comes into place, will that not impact the sentiment on the FMCG names?

[00:09:39]>> I already answered that.

[00:09:40]>> No, you said that No, I heard you say that markets don't discount two quarters out, which I heard you. But when the news around El Nino comes in, it will have an impact on sentiment, right?

[00:09:50]>> So, El Nino is not new. El Nino, the expectation has been there for the last 6 months. Yes, there is a downgrade from 90 to 93% to 90%, but when the Q1 results will come, I think market will move to that. These days, quarterly results, what is happening on crude, those are very important. I think we are missing the bigger picture. The bigger picture is price hike is back in FMCG and paint sector. See, whenever that happens, the operating leverage comes in terms of revenue. Second is whenever the such volatility and such extreme situation is there, the local players gain market share. So, we can't just pick up one thing, okay, El Nino is there, so stocks will correct. What about the market share gain? What about the double digit revenue growth? I think most companies will get. And when crude cools off, these companies don't pass on the raw material correction within 1 month. There's always one or two quarters of lag before they start passing on that benefit. I think there's a lot of moving parts. So, that's why I think investors these days play quarter to quarter rather than El Nino, because El Nino is not a new thing. This has been there as a concern last 6 months.

[00:10:54]And we are just mixing up the current FI correction to El Nino. No, it doesn't work that way. The entire market is also corrected ex of the IT in my view.

[00:11:02]>> [clears throat] >> Okay. So, well, the which which Mr. Sharma, is there a silver lining at all?

[00:11:10]Let's Let's segregate the two. Let's assume that El Nino is one of the ingredients, not the sufficient reason for the correction. The correction in FMCG is separate. But now, coming back to rainfall and not the stock price movements, is there a silver lining at all in this next couple of quarters with regards to monsoon?

[00:11:30]>> Uh you see, not for the season as such. For the season, we definitely we should prepare for below normal at least rainfall. It could be You see, El Nino doesn't strike harshly all across the regions. It does spare some pockets. Okay, and as the data we see, it all the four monsoon months, they have not been poor uh generally. It it does become good. One of the month we have seen even in the months in the El Nino years also. And I hope so. There are some other factors which can counteract, which come to the rescue, rescue from the El Nino ill effects of El Nino. Uh that will come up a little a little later. Yes, we should prepare for uh possibly uh maybe for the worst also. But at the moment, I feel it's a little little early. These the strongest of the the El Ninos, they have left some parts of our country with some good rainfall. I will say excess rainfall. during El Nino years, parts of Rajasthan, particularly in some parts of Gujarat, even one of the El Nino Karnataka was good. So, let us not worry that much. Let the monsoon settle in. I think that it is yet to come in.

[00:12:44]But the the core monsoon month, they matter most. July and August, the rainiest, the almost about 70% of the rainfall takes place during these two months. They are very very crucial. I think we should look out for that. How adverse the uh season can be on account of the El Nino.

[00:13:03]Uh not before that. As I said, course correction if needed, that can be uh done halfway through. But at this moment, we should not lost all the uh uh hope that it it it's going to strike it so badly across the country. May not be so. Yeah.

[00:13:20]>> Okay, let's hope for that. And also the distribution of rainfall as we've seen year on year matters as much as the overall number. Uh Avneesh, just one last call. You know, you explained well that if there is a problem, then it's going to be in second half, and you're seeing an overall concern and sell-off in the market, which includes these consumption stocks.

[00:13:40]Are there any basis results we've seen?

[00:13:42]Because all the FMCG results were pretty decent. Are there any that you would say are displaying an opportunity to buy, anything that you find interesting and well-poised in that space?

[00:13:55]>> Yeah, very good question. So, I'll break it into two parts. One is the high-growth companies where the comfort in valuation is a bit low. So, those will be essentially Nestle, Marico, Tata Consumer, Pidilite. Those four, five companies will continue to do quite well in Q1, Q2, irrespective of El Nino or no El Nino. But, the comfort in valuation is a bit low. Of course, then you need to see from the 52-week high how much they have corrected, and there can be some opportunity here also. I'm not at all saying that there is not an opportunity here. I'm just saying that here comfort in valuation is a bit low.

[00:14:32]Second bucket will be where the comfort in valuation is also there, and Q1, Q2, as I said, matters much more than El Nino impact in H2. I think we are getting too much carried away with El Nino. So, I want to reiterate that point. So, if I see comfort in valuation and where I think Q1, Q2 numbers could be good, those will be essentially Dabur, Colgate, even Varun Beverages, for example.

[00:14:54]Clearly, they will because of the extreme summer condition we have seen in Q1. So, those will be such companies. As of now, alcobev good from longer term, but from a crude inflation and glass inflation perspective, if you see, liquor companies have less pricing power because they obviously have that issue of the government approval. So, I will not advise currently that. That will be lower and longer time frame. So, that is how we should play this sector in these two buckets.

[00:15:23]>> Okay, interesting. Let's hope we don't bothering about El Nino beyond a point either or super El Nino as Mr. Sharma calls it. Thank you so much Abnish and GP Sharma for speaking with us today.

[00:15:36]That was a great conversation.