Brace yourself! If El Nino strikes, these sectors could be the most affected in India

[caption id=“attachment_82842” align=“alignleft” width=“860”]  The global weather forecast indicates the possibility of El Nio occurring in 2014 is growing. El Nino is a phenomenon of abnormal warming of waters in the equatorial Pacific Ocean, which could result in a reduction in rainfall over eastern andnorthern Australia, Indonesia and India. Given past trends, if El Nino does lead to a deficit monsoon in India, the prices of agriculture commodities, especially food articles, could inch higher. Firstbiz has compiled a list of sectors that are most likely to be affected by El Nino. Reuters[/caption]

[caption id=“attachment_82837” align=“alignleft” width=“860”]  Weather forecasters have said India should brace for a weak monsoon, as El Nino conditions are likely to develop. A strong El Nino in India would trigger lower production of summer crops such as sugarcane, rice and oilseeds. Reuters[/caption]

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[caption id=“attachment_82845” align=“alignleft” width=“860”]  Industries that are directly exposed to agriculture will be, of course, be immediately affected. Hence, fertiliser and other agri-related businesses such as PI Industries, Coromandel International, Bayer Cropsciences, etc, are most likley to be affected if the monsoons are below average. Reuters[/caption]

[caption id=“attachment_82848” align=“alignleft” width=“860”]  India’s banks will stare at a spectre of poor growth and even more bad loans if the rural economy is hit by El Nino. If there is a slide in farm economy, credit offtake from banks will also be hit. Already, banks are suffering from rising non-performing assets and given that agriculture is a priority sector for PSU banks, they will most definitely be on the frontline for loan write-downs if agriculture and its associated industries are affected. Reuters[/caption]

[caption id=“attachment_82849” align=“alignleft” width=“860”]  The RBI recently stated that El Nino could limit India’s GDP growth to 5% and lift inflation to over 8.5%. It said that a weak south-west monsoon, accompanied by by El Nino, could hurt agricultural growth and reduce the spending power of consumers, especially those in rural areas. That could impact demand for fast-moving consumer goods. According to a Times of India report, in the three years FY03, FY05 and FY10, when there was an El Nino impact, HUL, India’s largest consumer goods company, reported returns of -7 percent, -3 percent and -0.5 percent. Reuters[/caption]

[caption id=“attachment_82852” align=“alignleft” width=“860”]  The auto sector, which is also quite dependent on rural sales, could be affected since in a poor monsoon year, revenues of companies that are dependent on rural consumption will remain under pressure. Bank of America Merrill Lynch has already cautioned investors that El Nino could be a negative for stocks like Hero Motors, Mahindra and Mahindra and Bajaj Auto. Reuters[/caption]