Portfolio

No monsoon blues for markets

Nalinakanthi V | Updated on January 24, 2018

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Thanks to the strong growth in the services sector led by IT, the share of agriculture in the country’s GDP has fallen steadily over the past decade. From around 25 per cent in the early part of the decade, agriculture now contributes less than 18 per cent to India’s GDP.

Hence, the direct impact of a deficient rainfall on the country’s economic growth may be limited.

Sample this. In 2009-10, when the monsoon was almost 22 per cent below normal, the country’s real GDP (at factor cost) growth recovered to 8.59 per cent from 6.72 per cent in 2008-09. In the subsequent year, the economy expanded by 8.91 per cent.

Given the weak correlation between monsoon and GDP, the market has remained quite oblivious to a deficient monsoon, in the past. The market delivered positive returns in 2002, 2004 and 2009, when the monsoon was significantly below normal.

For instance, in 2009, benchmark indices Nifty and Sensex made whopping gains of almost 76 per cent and 81 per cent, respectively, driven by hopes of an economic recovery. Likewise, Nifty and Sensex gained about 11 and 13 per cent, respectively, in 2004.

A below-normal monsoon is definitely not good news for India as almost half the country’s population is dependent on agriculture for its livelihood.

And monsoon plays a critical role in the country’s agricultural prospects as over two-thirds of the country’s agricultural land is rain-fed.

However, monsoon may have to be viewed in conjunction with other triggers, such as corporate earnings, interest rates and inflation.

Also read: Why monsoon doesn't matter

Published on June 28, 2015

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