With the monsoon making rapid progress and the Meteorological Department predicting that it will cover the entire country, some stock market analysts and brokerages expect a bullish pull back for India.
India is seeing one of the best monsoon in last five decades. June rains are 58 per cent above normal (June accounts for 18 per cent of the South-West monsoon). Indian Meteorological Department has forecast good precipitation during the critical sowing months of July (101 per cent of normal) and August (96 per cent of normal), improving the prospects for kharif crops. Monsoon is crucial for the kharif crops such as rice, soyabean, cotton and maize as almost 60 per cent of the farm land in the country is rain-fed.
There is a widespread perception that a deficient monsoon will impact the economic activity in rural areas and result in a slowdown of the economy. A weak economy, in turn, will impact the stock markets directly, believe most market participants.
On the other hand, normal and timely rains will increase agriculture productivity which will check inflation. This will also lead to a higher disposable income at the hands of rural folk, who mainly depend up on agriculture for their livelihood.
As the RBI sits tightly on the rate front, a section of the market also hopes that a normal monsoon could help the Central Bank relax its grip a bit.
According to Vivek Mahajan of Aditya Birla Money, prospects of a bumper paddy, sugarcane and cotton crop will help cool agri inflation. The rabi (winter) crop is also expected to do well. This in turn will give bigger headroom to the RBI to ease interest rates. However, equity markets do not always move in tandem with the weather. An analysis of monsoon data between 2001 and 2013 suggests a very limited correlation between monsoons and Sensex. For instance, the country faced a monsoon deficit in 2009-10 of about 25 per cent. But during June-March (2009-10), the BSE Sensex posted a gain of almost 20 per cent.
During 2008-09, monsoon was normal, but the global slowdown impacted the Indian markets too; the Sensex slumped 41 per cent during June-March period. Market participants can track the following factors that could influence the sentiment:
Rupee movement , as rupee is hovering around 60 against the dollar
Global cues will continue to be a very big factor.
Derivative contracts are expiring on Thursday on the NSE. Generally, the market swings wildly during the settlement week.
A three-day visit from Sunday to India by the US Secretary of State John Kerry will be closely monitored.