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Rainfall numbers and the probability of a “normal” monsoon is one of the most tracked parameters for the economy and investment analysis. Agriculture is the strength of the Indian economy. Agriculture and allied sectors are one of the largest sectors of the country accounting for 20.19% of India’s gross value (fiscal year 2020-21).
Let’s look at how monsoons can affect your investment portfolio.
The southwest monsoon is primary the monsoon season in India starting from June to September. This season fulfills the crucial 75% of the total water requirement and provides for the farming of both, the Kharif and the Rabi crops. Kharif crop- ping season is from July to October whereas the Rabi cropping season is from October to March. Southwest monsoons not only have a direct impact on kharif crops but also aid in replenishing water sources like the reservoirs, lakes and groundwater which are further used for irrigation of Rabi crops.
The Indian Meteorological Department (IMD) has predicted normal monsoon for this year. However, the spatial distribution suggests that the key agri- cultural region of the Northwest will likely have drier weather and the rainfall during the starting of the season could be low.
Rain has a direct impact on agricultural produce. Rain can affect the yields of crops such as rice, soybean, corn, sugar cane, and oil seeds, leading to an impact on food inflation.
Cereals, pulses and crops are often raw materials for various industries. An impact on agricultural produce will impact raw material prices.
Monsoons often have a direct impact on rural demand and sentiments, thereby affecting the stock price of companies and sectors which are dependent on rural consumption. Sectors likely to be impacted by monsoon could be FMCG, auto – tractors and two wheelers, fertilizers, and pesti- cides.
With monsoon showers in Mumbai, the weather has turned a little better. While the monsoon remains important for the agri-economy and market sentiment, its impact on the overall economy has decreased significantly over the years.
Stock market movements are seldom determined by a single factor. As such, on a given day, there are a multitude of factors, including FII flows, interest rates, corporate results, geopolitics, the monsoon, etc. Instead of trying to forecast and then reacting to each of these factors, investors will do well to have a well-defined financial plan and stick to it. To help with your financial plan, consult a financial advisor.
Written by: Suresh Soni, CEO, Baroda BNP Paribas Mutual Fund
Sources: IMD website - mausam.imd.gov.in, agricoop.nic.in and internal research
Disclaimer:
The views and investment tips expressed by experts are their own and are meant for informational purposes only and should not be construed as investment advice. Investors should check with their financial advisors before taking any investment decisions.
The material contained herein has been obtained from publicly available information, internally developed data and other sources believed to be reliable, but Baroda BNP Paribas Asset Management India Private Limited (formerly BNP Paribas Asset Management India Private Limited) (AMC) makes no representation that it is accurate or complete. The AMC has no obligation to tell the recipient when opinions or information given herein change. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. This information is meant for general reading purposes only and is not meant to serve as a professional guide for the readers. Except for the historical information contained herein, statements in this publication, which contain words or phrases such as 'will', 'would', etc., and similar expressions or variations of such expressions may constitute 'forward-looking statements'. These forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. The AMC undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date thereof. Words like believe/belief are independent perception of the Fund Manager and do not construe as opinion or advise. This information is not intended to be an offer to sell or a solicitation for the purchase or sale of any financial product or instrument. The information should not be construed as investment advice and investors are requested to consult their investment advisor and arrive at an informed investment decision before making any investments. The sector(s) mentioned in this document do not constitute any recommendation of the same and Baroda BNP Paribas Mutual Fund may or may not have any future position in these sector(s). The Trustee, AMC, Mutual Fund, their directors, offi- cers or their employees shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages arising out of the information contained in this docu- ment.
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