Moneycontrol Pro Panorama | When it rains, it pours

As the weather office forecasts heavy rains in September, there are fears consumer spending will be hit during the crucial festival season. (File image)

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Extreme rains in the northern, southern and western parts of the country are beginning to worry industry participants. Floods and landslides are inundating cities, damaging crops and properties, and disrupting livelihoods.

On the business side, lower temperatures have reduced demand for electricity and adversely impacted sales of consumer appliances. As the weather office forecasts heavy rains in September, there are fears consumer spending will be hit during the crucial festival season.

“An extended monsoon season can potentially have a negative bearing on paint demand as Diwali arrives early this year on 21 October vs 1 November last year, hence reducing the days available for painting before the festive season,” warn analysts at Nomura.

Some of the ill effects of excess rains are already visible. Tourism and travel have been hit. Crop damage and disruption to supply chains have sent vegetable prices higher.

If India continues to see heavy rains, it can delay the harvest season or worse, damage crops. That is the risk investors should watch out for. Farmers in Rajasthan, Punjab, Haryana, Maharashtra, Karnataka and Telangana are already facing crop damage due to floods and heavy rains.

The full impact of the extreme weather conditions on corporate results will be known when companies release their July-September quarter results.

Note that expectations of a goods and services tax (GST) rate cut and soft urban demand are already weighing on consumer spending. Analyst surveys are indicating weak demand for passenger vehicles. You can read our Research Team’s analysis of automobile sales in August here.

Additionally, the current quarter will begin to see the impact of 50 percent US tariffs. “The implications of tariffs by the US are far-reaching. It’s deflationary in nature and likely to slow down global growth and earnings—even in non-tradeable cyclical sectors,” warn analysts at Nuvama Institutional Equities.

Of course, monsoon is a seasonal event and GST reforms, if done in the right spirit, can have positive impact on Indian economy over the long run. Moreover, there is a possibility of a rapprochement in India-US trade relations. Even so, investors should not underestimate the impact of adverse short-term events on the domestic economy and corporate earnings.

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