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The prediction of a normal monsoon this year by weather forecasting agencies could inject new life into the companies dependent on rural areas for revenues (affected by demonetisation) or those that use agriculture-related inputs.
The India Meteorological Department’s forecast for India’s crucial June-September or South-West monsoon season stands at 96 per cent of the long-period average (LPA), with an error of +/- 5 per cent.
This is lower than last year’s 106 per cent, but higher than the 2014/2015 forecast of 95 per cent/93 per cent. The likelihood of near-normal rainfall is 38 per cent, and distribution of rain across the country is also expected to be good. Earlier, private weather forecasting agency Skymet had predicted rainfall at 95 per cent ± 5 per cent.
“Normal monsoons will be sentimentally positive and support rural growth. It will also aid in recovery of rural growth post the demonetisation-led currency crunch in the second half of FY17,” said Antique Stock Broking.
According to Nirmal Bang: “A good monsoon is important for recovery in the rural sector, supporting consumer spending on staples as well as discretionary goods.”
Substantial businessAutomobiles (passenger vehicles, two-wheelers), fertiliser and consumer durables derive substantial amount of business from rural areas. Some fast-moving consumer goods companies not only get revenues from rural markets but some also depend on agriculture for their raw materials.
Banks can also gain as food inflation will be under control and hence lesser need for the RBI to hike or maintain rates. Public sector banks particularly will gain from a good monsoon as there will be a lesser need for waiver of farm loans. “A second consecutive normal monsoon season could ease pressure on the government to waive off farm loans,” pointed out Motilal Oswal in a report.
Nevertheless, India’s dependence on agriculture (now 18 per cent of gross domestic product) and in turn monsoons has abated over the years. Experts also say there is no direct correlation between monsoon and food inflation.
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