-Southwest monsoons expected to be normal
-No indications of any heat wave or El Nino formation
-Good news for agrochemical players amid the turmoil-Expect fast recovery once the current situation normalizes
While the coronavirus is the main worry for India at the moment, we shouldn’t take our eyes off another lurking danger – the monsoons. Should the seasonal rains disappoint in a year like this, the consequences are likely to be extremely grave.
The good news is that monsoons this year are expected to be normal going by the early estimates of most major meteorological departments. At the moment, there doesn’t appear to be any danger any La Nina effect (surplus monsoon) or El Nino (deficit monsoon).
This is welcome news for agrochemical players and those companies dependent on monsoons and rural India. With the global COVID-19 outbreak, stocks across sectors have seen a steep correction. A normal upcoming monsoon could lead to a faster recovery post the current turmoil. Moreover, the government has announced a financial aid package to support the economy post the lockdown.
The countdown to the summer monsoon season has begun and metrological departments across the globe are trying to gauge various oceanic and wind parameters to predict the season. As per the early reports from major weather websites, this year’s south west monsoons which hit India in June, is expected to be a normal one, having a slightly higher probability to be a good one. Unlike the 2019 predictions, there is no visibility of an El Nino formation yet and if anything, there is 60 per cent probability of neutral conditions through spring that are likely to continue through summer with 50 per cent chance.
Rural economy and sectors impacted by monsoon performance
The performance of the monsoons has an important bearing on India Inc. Directly or indirectly, the rural economy forms an important part of the earnings of Indian companies. Rainfall impacts crop output which in turn impacts the cash flows of farmers and rural demand. Agrochemicals, seeds, FMCG and auto are a few sectors where monsoons have a substantial impact.
Update on Rabi
The recent Rabi season was a good one. With a prolonged monsoon last year, water levels were healthy at most major reservoirs across the country. This led to a good sowing during the season. Weather conditions remained favorable through the season as well.
There have been reports about recent non-seasonal rains coupled with hail and thunder storms in some parts of northern India. This does not augur well and has led to crop damage in some areas. While the current damage is contained, more such storms might aggravate the damage which might not be good news for harvest and rural incomes. Moreover, the current lockdown is also imposing various challenges for the farmer in the Rabi harvest which might also impact rural incomes.
Owing to the dependency on monsoon, it does remain an important factor and has a substantial impact on agri performance. While rainfall has a direct impact on food production, it does not always translate into a broader level impact. That said, the actual monsoon performance remains an important barometer for the fortunes of many agrochemical players along with the rural economy, which in turn impacts many other related sectors.
For now, the expectation tilt towards a positive scenario in this year’s South west monsoon is good news amid the current turmoil.
Follow @RuchiagrawalFor more research articles, visit our Moneycontrol Research page