Every year, monsoon forecasts become a key factor in studying stock and commodity markets. In April 2024, IMD predicted that India is likely to experience above-average monsoon rainfall, which is estimated at 106% of the long-term average for 2024.
The current second phase of the monsoon is dominated by La Niña weather, but rainfall in Uttarakhand and Himachal Pradesh is predicted to be below normal.
Monsoon forecast is a key parameter for policymakers as it influences the inflation rate. A normal monsoon has been good and favourable for most states in India, helping to keep inflation more under control.
How will the monsoon impact the Indian economy?
As we all know, India is an agricultural economy. The country has the largest area under cultivation in the world and holds the unique competitive advantage of being the second largest producer of wheat and rice in the world. Most farmers still depend on monsoon rains to grow food. If the monsoon rains are normal, as predicted by the India Meteorological Department, the supply of all agricultural commodities will not be affected. However, poor rainfall may affect crop cultivation and supply.
A majority of India’s rural population is employed in the agriculture sector, which contributes significantly to the country’s GDP growth. Market participants are actively tracking monsoon rains to spot opportunities in the stock market.
The monsoon will have a direct impact on the FMCG sector. An above-normal monsoon will sustain food supplies and meet consumer demand. Food inflation will also remain low, leading to a steady rise in profitability for FMCG companies.
Automotive companies involved in tractor manufacturing also play a major role in agriculture. Normal rainfall is likely to boost sales for automotive companies as tractors are one of the most used vehicles in agricultural production.
The above-normal monsoon will also boost rural incomes, helping to boost demand in the country’s rural areas.
Will an above-normal monsoon be a boon for investors?
IMD’s predictions indicate that 2024 will be a good year for farmers. If the predictions prove correct, Indian stock markets are likely to rise further. Sectors like FMCG, chemicals, and automobiles are likely to perform well. Demand for agricultural produce will eventually increase, improving the profitability of companies.
The government’s focus on improving the agriculture sector and increasing rural incomes has boosted economic growth. Stock market participants are bullish and the index is nearing its all-time high, giving confidence for further investments.
The outcome of the Indian Lok Sabha elections is likely to determine the direction of the stock market in the coming months. An above-normal monsoon is likely to help rally market indexes and certain sectors.
The Nifty FMCG index is in a consolidation phase and is trading between 52,500 and 56,000.As the overall market sentiment is positive, the upside range is likely to increase in the coming months.
The Nifty Auto index has already touched an all-time high and the very bullish technical chart structure indicates that investors are positive on the future prospects of the auto sector.
As the market indexes are high, investors should be cautious before investing as any negative news could trigger a short-term correction and drag the indexes down.
In conclusion, monsoon plays a key role for the overall agricultural sector in India. The IMD forecast for monsoon is favourable with above normal rainfall expected. FMCG and automotive sectors will be a key focus in the coming months.
Rural demand is likely to boost GDP growth. Long-term investors who are bullish on India can invest in the coming months. A win for the incumbent ruling party in the Indian Lok Sabha elections could see a strong rally in broad market indices.
Atul Palak, CEO of Biglu
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