Poor monsoon impact stock markets
India s stocks went low on Monday too. India’s stock markets ended nearly 0.5 percent lower today as concerns about a deficient monsoon and weak rupee curtailed optimism around likely strong GDP data due later in the day.
Historically it is proved that markets fare better even during bad conditions. For instance, stock markets have fared amazingly in the years 2004, 2009 and 2014 in spite of bad monsoon and low agriculture productivity in 2004, there is no correction till June. Once the news that India would receive deficient rainfall came out, then only market discounted and followed with a bull-run which continued for four years.
Again in 2009, the market received some correction only in the month of July, but later it moved upward to register years’ high. Even in 2014, when the Indian agriculture economy suffered due to below normal rains and unseasonal rains, the markets registered higher with Sensex crossing 28,000-mark. This amply proves that the weather conditions normally get discounted and market searches for new triggers for growth. However, the weather scientists assume bad monsoon for two continuous years will cripple agriculture and so will surely affect the stock markets.
India suffered a delayed and deficient monsoon last year. A second year of poor monsoon is bad news for the Modi government. Narendra Modi was elected prime minister last year on the promise of “achhe din” but his efforts will be severely tested by consecutive bad-rain years. Ache din (good days) have connect to monsoon.
Over half of India’s population is dependent on farm income, and farmers are engaged in rain-fed farming, primarily. The four-month monsoon season starting in early June is India’s main rainfall season. Farming accounts for about 16% of the economy but its significance is far greater than its share of the GDP.
Starting with farm income, poor rains snowball disastrously along the entire economy. A rise in food prices sparks inflation even as poor rains hit consumption because of falling rural incomes. Rising interest rates impact industrial growth and, ultimately, affect overall GDP numbers.
The Modi government, which witnessed slowing inflation until now due to the commodity price crash, will face its first major challenge on inflation now. “Remember a sizeable portion of India’s population resides in the villages and companies across sectors have headed to rural areas in the last few years. Obviously, if monsoons are weak, farm incomes will come down, impacting purchasing power of consumers in rural areas,” Videocon Group Chairman Venugopal Dhoot.