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Rural Demand to Jump – Agflation to Moderate

October 4, 2010

Analysts across the street are hiking Khariff farm income growth by 20-25% with a better-than-expected harvest likely in October-November. Summer farm income growth has already likely doubled to 18.9% from 09 on agflation.

Rains 102% of normal – have raised yields to water a crop that is far larger than what the increase in sowing suggested. The biggest gain should accrue to cotton farmers who should enjoy both a 39.6% larger crop as well as higher prices. Pulses farmers will see a 39.5% larger crop compensate for falling agflation. The Indus, that waters the winter wheat crop, is now filled up to 96.3% of capacity, almost double of last year’s 49.7%.

All this suggests, more income in the hands of Rural Folks for increased spending combined with moderation of Food related Inflation [hopefully the government has the will to crack down on lobbies] Thus the markets which discount the future today have run ahead on the back of this data and expectations.

Well, is it worth buying at this level ? Very Very Selectively as the Sensex and Nifty FY 11 P/E is at 19.8 and we will cover in our next article about the Rich Indian Stock Valuations.

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