Mumbai The India Meteorological Department (IMD) has forecast a normal monsoon for the calendar year 2022. In its second long-range forecast, the IMD said it expects 103% of the long period average (LPA) during the current monsoon season. , Rainfall of 96-104% of LPA is considered normal.
The cumulative rainfall during June 1-9 was 41% below the LPA. “Despite an early start, the progress of monsoon so far has been slow. Geographical distribution has also remained weak, with many parts of north and central India experiencing severe deficits in rainfall,” Barclays India economists said in a June 9 report.
see full image
A normal monsoon this year is crucial, with rural demand expected to improve, which largely rests on it. The earnings outlook for companies in sectors such as fast-growing consumer goods, tractors and agricultural input manufacturers will also depend on the pace of recovery in rural demand.
For now, economists and market experts say it is too early to draw any meaningful conclusions from the weak start to the monsoon season.
A normal monsoon will also provide relief to the Reserve Bank of India (RBI) as it tries to contain raging retail inflation, including high food inflation. The RBI is in a tough competition and recently raised its retail inflation forecast for FY13 by 200 basis points to 6.7%. One basis point is 0.01%.
However, the monsoon forecast figures are not very comforting. An analysis by BoB Capital Markets Ltd shows that in six out of the last 10 years, monsoon has come in less than what was estimated by IMD/private agency Skymet in terms of percentage of LPA. Hence, the concern of equity investors on the progress of monsoon is understandable.
“Slow progress of monsoon may affect Kharif sowing. Of critical importance will be the recovery of monsoons in July and August as these months are the most important for sowing,” economists at Yes Securities Ltd said in a report on June 9.
Other important factors are the spatial distribution of rainfall and its timely return.
That said, monsoon is not the only factor that equity market investors are watching.
“The dependence of India’s economic growth on the monsoon has diminished over time. It is one of the factors that decides what happens to rural demand. Hence, it is not of great importance as a driver for the equity market in itself. It is difficult to draw a cause-and-effect relationship between equity market movement and monsoon. However, less rain than expected has weighed on investor sentiments.