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Last Updated : Aug 21, 2019 03:15 PM IST | Source: Moneycontrol.com

Monsoon: Is it really a big phenomenon for the markets?

For instance, in 2011 the rainfall prediction was at 98 percent of long-period average, while the actual rainfall registered was 102 percent. However, markets were down 24.6 percent in the same calendar year.

Moneycontrol Contributor @moneycontrolcom

Gaurav Garg

Are rains one of the crucial factors that drive the markets? It has always been claimed that the monsoon plays an important role when it comes to the overall performance of stock markets, but the data suggests otherwise. In years gone by, it has been observed multiple times that the markets have seldom moved in line with rainfall.

For instance, in 2011, the rainfall prediction was at 98 percent of long-period average, while the actual rainfall registered was 102 percent. However, markets were down 24.6 percent in the same calendar year. In 2014, there was a significant shortfall in rains (predicted rainfall was 95 percent while actual was 88 percent). However, the markets closed with a 29.9 percent gain.

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Even in 2018, India Meteorological Department’s prediction stood at almost 97 percent of the long-term average, while the actual rainfall was recorded to be 91 percent and the markets went on to give a gain of 5.91 percent during the calendar year. We can see that a correlation between rains and markets seems inconsistent and thus, placing a number on this might not be the right thing to do.

The Indian Meteorological Department predicted 96 percent of long period average rains in April 2019 this year, whereas a private weather forecaster Skymet Weather Services, gave a prediction of 93 percent. This data represents the overall assumption or prediction of rainfall. One should also keep this in mind that too much rain in one part of the country and too little elsewhere can be a negative sign.

Studies show that inventions and growth of irrigation projects over the last decade have put the country in a better condition to handle shortages in rainfall. India has been facing floods and flood-like situations in western and southern regions of the country, despite June being a dry month this year. The markets, on the other hand, has responded more towards direct economic happenings. This has curbed the effects that the monsoon could have possibly had on the markets too.

Maiden Budget announcements, tax discussions regarding FPIs and the elections have driven markets more than anything this year. Thus, political factors have been bigger drivers of the economy than factors regarding natural events.

Monsoon rains play a vital role when it comes to farm output. An increase in rains are directly related to an increase in farm production, and higher disposable income for a large population. This definitely is going to have a positive impact for all retail-consumer-oriented industries. But the effects are limited to a few specific sectors rather than the overall economy. Poor monsoon may have a negative impact in the short run. However, it is difficult to claim the same for a longer period.

The author is Head of Research at CapitalVia Global Research Limited- Investment Advisor.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Aug 21, 2019 03:15 pm
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