A deficient monsoon this year, if the rains play out according to the Met Department’s forecast, is unlikely to dull sentiment at the bourses as it has in the past few years, according to analysts. Historically, they say, the correlation between the monsoon and equity market performance has been weak, and if the markets have fallen in recent years, it’s mostly because of supply bottlenecks during rains.

Debopam Chaudhuri, Chief Economist, ZyFin Research, said a poor monsoon’s effect on food prices will be neutral. “The new government has been working to correct supply-side problems. Even if the monsoon is deficient, as predicted, there is enough stock in storage to not adversely affect prices.”

Anand Shah, Executive Director, BNP Paribas Mutual Fund, said: “Even if inflation does go up, the RBI is unlikely to raise interest rates. At most, it will delay a further rate cut and it will be some more time before rural consumption picks up. Neither will jolt the capital markets very much.”

Alex Mathews, head of equity research, Geojit BNP Paribas Financial Services, says the market seems to already have discounted below-par monsoon into prices. “When the actual data on the monsoon comes out, the markets might see a minor correction.”

“But a large monsoon impact,” Mathews said, “is only likely in case of a drought situation, which will adversely affect rural wealth and hence demand for consumer products. Otherwise, the downside is limited”.

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