July-August rains more crucial for stock market than overall monsoon average

Monsoon averages rarely cast a cloud on returns

Do good rains bring good returns? While a normal monsoon that translates into strong crop output can be a boon for the economy—spurring agricultural growth—the correlation with equity markets is more tenuous.

A Moneycontrol analysis shows that years witnessing normal or above-normal monsoons have shown no consistent correlation with returns from the Sensex.

For example, in 2024, rainfall was 8 percent above the long-period average, yet the markets rose by just 1.2 percent between June and November. Foodgrain output was up 5 percent, which may have supported the BSE Consumer Durables and FMCG sub-indices—both of which rose by 4 and 5 percent, respectively. A longer-term trend beginning from 2008 reveals no direct link between overall monsoon performance and market outcomes.

However, when focusing on July and August—the most crucial months of the monsoon season by which time most of the sowing is complete—a different pattern appears.

The market’s performance appears to show a weak correlation with rainfall during these two months, particularly when precipitation is well-distributed across the country and not confined to a few states. The analysis indicates that higher or normal rainfall, as long as it is not excessive (i.e., not more than 10 percent above normal), tends to be associated with better market performance.

In 2015, for example, average rainfall during July and August was 19 percent below the LPA, and the markets ended 4 percent lower between June and November. Similarly, in 2018, a below-normal monsoon coincided with a 2.5 percent decline in market returns during the same period. In contrast, 2010, a year with strong and well-distributed rainfall, saw market returns of over 14 percent.

The consumer durables sub-index tends to reflect this correlation, likely due to its sensitivity to rural demand.

The IMD has predicted monsoon rainfall to be over 6 percent above average in 2025. However, experts stress that timing and spatial distribution are critical.

“From a temporal perspective, rainfall activity in July and August is most important, as by then the majority of kharif sowing is completed. Meanwhile, from a spatial distribution perspective, rainfall activity in major producer states that have low irrigation coverage is important,” said Gaura Sengupta, Chief Economist at IDFC First Bank, told Moneycontrol, while commenting on the impact of rains on crop output.