Podcast | Monsoon hits Kerala: Here's why this particular weather forecast is important

The Monsoon is here and it is the one time of the year that even business news turns into a fairly detailed weather forecast. Of course, largely because India is still, for the most part, an agrarian economy, especially in terms of employment. A good monsoon is generally good news for markets in India. And for politics. Governments are known to have crumbled because of droughts following below average monsoons.

Anyway, back to the rains. The Southwest Monsoon hit Kerala, marking the arrival of the rainy season in the country. The private weather forecaster Skymet said the Monsoon would hit the Kerala coast on May 28. However, the India Meteorological Department, in its morning bulletin, declared that the Monsoon would hit Kerala in the next 24 hours.

One of the primary parameters for the declaration of monsoon is that 60 percent of 14 available stations in Kerala and the southern coast of Karnataka report rainfall of 2.5 mm or more for two straight days.  Other parameters are that the westerly winds must be up to 15,000 feet above mean sea level and outgoing long-wave radiation should be less than 200 wm-2 (watt per square metre).

Skymet is clear that the monsoon arrived on Monday, even if the IMD is more comfortable with May 29^th as the date that the monsoon makes landfall.  “The long-wave radiation is 140 wm-2. Rain for two consecutive days has been recorded in almost all weather stations… even the wind criteria have matched. (We can) safely say the Monsoon has hit Kerela," said Mahesh Palwat, Vice-President of Meteorology and Climate Change at Skymet.

In any case, IMD declared the arrival of monsoon this morning. “Three days ahead of the normal,” said the met department. Widespread rainfall was reported across Kerala over the last four days. The monsoon is set to have a normal advance over the subcontinent. The US Joint Typhoon Warning Centre located a low-pressure area 795 km South, South-East of Kolkata but that looks headed for Northern Myanmar over the next 24 hours.

So why do we care so much about this particular weather forecast? Rural consumer demand and farmer suicides. Consider this. Two consecutively good monsoons - that’s in two years -   have played a key role in reviving demand for consumer goods in rural India. Executives in the consumer goods industry observe that uncertainty over the macroeconomic situation, and in the job market, may have dented consumer confidence in urban areas but rural households are spending more. Two consecutive years of the better monsoon – in FY17 and FY18 – led to better crop yields. Word of a massive hike in MSP rates has also lifted consumer confidence in rural areas. MSP for pulses has already been revised once. In certain states, like Madhya Pradesh, MSP for wheat is already at its peak – thanks to the upcoming state election.

What it boils down to is this: Equally-distributed rain usually sees a healthy uptick in demand for products from rural areas, and results in an increase in rural citizens' purchasing power. Which is good for Bharatdesh’s economy overall. Ergo, the Indian economy is heavily dependent on monsoon rain. Sectors such as agrochemicals, FMCG, automobile, rural-focused non-banking financial services companies (NBFCs) are likely to witness marked benefits from a stable monsoon.

DK Aggarwal, Chairman, and MD, SMC Investments and Advisors, doesn’t hedge his bets when it comes to the importance of the monsoon. "Monsoon rains are the lifeblood for the Indian economy and are very critical for the farm sector, which accounts for about 15 percent of India's economy. There is a very strong correlation between the monsoon and the performance of the Indian economy along with the stock market," he told Moneycontrol.

He added that "A good monsoon creates positive reading about the economy among investors, including FIIs…a stronger economic outlook would lift the sentiments of investors, mainly companies selling products in rural areas from the sectors such as FMCG, consumer goods, automobiles."

"Indian companies derive a significant portion of their earnings from the rural areas of the country. Some companies are directly dealing in the agriculture market like seeds, agrochemicals, fertilizers etc,” said Deepak Jasani, Head of Retail Research at HDFC Securities. He adds that “deficient/excess rainfall leading to crop losses result in lower earnings for farmers resulting in lower rural demand and lower sales. Another sector affected due to the health of the rural economy is banks, NBFCs, and micro-finance institutions."

Other analysts noted that banks, FMCG, and the automobile sector make up more than half the Nifty's weight. Any change in the expectations of earnings in these sectors, on the basis of the monsoon, is positive for these stocks and to the index as a whole.

So how does the overall monsoon look like this year? The met, in its first stage of the forecast, sees a 'normal' monsoon this year, likely around 97 percent of the long period average. In 2017, the southwest monsoon was near-normal at 95 percent of the long period average, but patchy.

Let’s define what a normal monsoon is, in India. The IMD describes the average, or normal, rainfall as between 96 percent and 104 percent of a 50-year average of 89 cm for the four-month rainy season that runs from June to September. You know, the months that are declared off-season by hotels in Goa.

2017 saw a healthy monsoon in general. Saurashtra and western Rajasthan received 40% excess rain but Uttar Pradesh and Vidarbha received 30% less than average.

In 2016, India received 95 percent of its normal monsoon rains. June and July received more than normal while August and September saw deficits. Prior to 2016, India had weathered back-to-back droughts for two years. That was just the fourth time in more than 100 years, hurting incomes and driving farmers to suicide. Some facts are morbid. This issue receives little coverage but, to see the impact of a good monsoon, 2016 saw the lowest number of farmer suicides in 20 years. How many? 11,370. 2015 witnessed 12,602 farmer suicides. The worst affected states are Maharashtra, Karnataka, Telangana, and Andhra.

Experts have warned that the monsoon is changing. The geographies affected in 2017 also seem to be part of a pattern as evidence from 60 years of rainfall data shows extreme monsoon events are concentrated along a band running through central India from Saurashtra-southern Rajasthan all the way up to Assam.

That said, the forecast for this year seems to be in the positive. Over the last three decades, the government’s weather modellers predicted a “normal” monsoon in all but five occasions. Staying with that trend, ahead of an important election year, the Meteorological Department forecast has pegged the upcoming monsoon as normal.