How do monsoons impact The Indian Stock Markets ?
Monsoon Impact On Indian Stock Market
The monsoon accounts for around 70% of the country's annual rainfalls.
Monsoon rains are critical for the farm sector, which accounts for about 15% of India's $2.5 trillion economy.
Nearly half of the 130 crores Indian population depends on agriculture directly or indirectly.
The Indian economy hence is also referred to as an agrarian economy.
Among other factors affecting stock markets and the overall Indian economy, the monsoon is considered a major deciding factor, given the massive agricultural activity in India.
Let's see how the monsoon affects the economy :
The monsoon has a direct impact on agriculture which is dependent on the southwest monsoon.
Poor monsoons delay planting and produce smaller yields of crops such as rice, corn, sugar cane and oilseeds (also known as Kharif crops).
That can accelerate food inflation, which ultimately impacts the overall economy.
It also has a cascading effect on the demand and supply of other goods such as FMCG, Tractors, Two-Wheelers, fertilisers, pesticides, and so on.
The impact even ripples overseas, as commodity markets are starved of Indian sugar and rice.
In FY21 India exported, Rice = $9.65 billion Wheat = $2.2 billion.
Thus, bad monsoons end up hurting India's exports too.
Monsoon also impacts groundwater levels, reservoirs, and so on.
These are necessary for providing drinking water, irrigation for crops and power, and water for industries is replenished largely on account of the monsoon.
The majority of the Indian population resides in the rural part of India and focus of FMCG companies is on the rural demand.
Rural demand is directly connected to the monsoon because, if the farmers in rural India have a good year (crop-wise) they can afford better things which ends up in pent-up demand for FMCG goods, tractors, fertilisers, pesticides, and so on.
However, some sectors like cement, infrastructure, building, etc. are negatively affected due to the monsoon as construction activity is halted during the months of monsoon resulting is sluggish performance.
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