The Indian Meteorological Department (IMD) has forecast a normal monsoon for the calendar year 2022. In its second long range forecast, the IMD said it expects rainfall of 103% of the long period average during the current monsoon season. Monsoon season is expected to be normal for the fourth year in a row.
However, in a June 9 report, Barclays economists said, “Despite an early start, the progress of the monsoon so far has been slow. The cumulative rainfall during June 1-9 was 41% below the Long Period Average (LPA)” Although it is too early to draw any meaningful conclusions, given that the monsoon season is still too early.”
The report further said that the geographical distribution has also remained weak, with many parts of north and central India facing major deficits in rainfall.
Normal monsoon is important this year. Expectations of recovery in rural demand, which have been sluggish lately, are largely hinged on a normal monsoon. Weak rural demand has impacted earnings performance of companies in areas such as fast-growing consumer goods in recent quarters. Companies are struggling to meaningfully pass on the burden of increased cost of living amid weak rural demand. Within the automobile sector, the significant tractor sales outlook for Mahindra & Mahindra Ltd also depends on how the monsoon pans out.
Also, at a time when food inflation remains high, a normal monsoon will provide some relief to the Indian central bank as it tries to contain rampant inflation. Note that the Reserve Bank of India, in its latest policy meeting, has raised its retail inflation forecast for FY13 by 200 basis points to 6.7%. One basis point is 0.01%.
While it is wait-and-watch for equity investors on the monsoon front, economists at Yes Securities Ltd have warned that a slow progress of monsoon could affect kharif sowing. “Resumption of monsoon in July and August will be of critical importance as these months are most important for sowing activity,” said a report on June 9.