Each year, monsoon forecasts become an important aspect of studying an equity and commodity market. In April 2024, IMD predicted that India is likely to receive above-average monsoon rainfall, which is estimated to be 106 percent of the long-term average in 2024.
La Nina weather conditions are developing during the current monsoon's second phase. However, rainfall in Uttarakhand and Himachal Pradesh has been predicted to be below normal.
Monsoon forecast is an essential parameter for policymakers, impacting inflation rates. A normal monsoon is good and favourable for most of the states of India, allowing for more controlled inflation.
How monsoon impacts the Indian economy?
As we know, India is an agricultural economy. The country has a unique competitive advantage with the largest arable land area and is the second-largest wheat and rice producer. Most farmers still depend on the monsoon rain to cultivate food. If the monsoon rainfall remains normal, as predicted by the IMD, then the supply of all agricultural goods will not get hammered. However, if the rainfall is low, it may impact crop cultivation and supply.
The majority of India's rural population is employed in the agriculture sector, which contributes a big part to the growth of the country's GDP. Market participants actively track the monsoon rainfall to find opportunities in the stock market.
The monsoon directly impacts the FMCG sector. The above-normal monsoon will maintain the supply of food, satisfying consumer demand. Food inflation will also remain low, and the profitability of FMCG companies will be on a steady rise.
Automobile companies involved in tractor manufacturing also play a big role in agriculture. Tractors are one of the most used vehicles for crop production, so normal rainfall is likely to increase automobile company sales.
The above-normal monsoons will also increase rural income and help boost the country's rural demand.
Will the above normal monsoon be positive for investors?
IMD predictions support that 2024 will be a good year for farmers. If the predictions were up to the mark, Indian stock markets may rise higher. Sectors such as FMCG, chemicals, and automobiles may perform well. The demand for agricultural goods will eventually increase, and the profitability of the companies will rise.
The government's focus on improving the agricultural sector and increasing rural income fuels economic growth. Stock market participants look bullish, and indices are near all-time highs, giving confidence for further investment.
Lok Sabha election results will likely decide the stock market's direction for the next few months. The above-normal monsoon will fuel the rally in market indices and specific sectors.
The Nifty FMCG index is in the consolidation phase, trading between 52,500 and 56,000. The overall market sentiment is positive, so upward-range expansion is possible in the coming months.
The Nifty Auto index is already at an all-time high. The highly bullish technical chart structure shows investors are positive about the auto sector's future outlook.
Investors need to be careful before investing because market indices are high. Any negative news can trigger a short-term correction, dragging the index down.
In conclusion, the monsoon plays an important role in India's entire agriculture sector. The IMD prediction for the monsoon is positive, and above-average rainfall is estimated. The FMCG and Automobile sectors will be a key focus in the coming months.
Rural demand will likely boost GDP growth. Long-term investors who are bullish on India can invest in the coming months. A significant upward movement in the broader market indices could occur if the Lok Sabha election favours the current ruling party.
Atul Parakh, CEO of Bigul
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First Published:
29 May 2024, 09:04 AM IST
