Updated Apr 13, 2022

How does Monsoon impact the "Stock market"?

How does Monsoon impact the stock market?

For each zone of India, Skymet/IMD estimates rainfall patterns across the Indian subcontinent and then begins the sequence of rainfall forecasts. Agri-crops are often devastated by El Nio or drought. The monsoon season lasts for four months out of the year, bringing around seventy-five per cent of the country's yearly rainfall. For agri-economies like India and its equity markets, this is critical. Because the country relied on agricultural economies, the Monsoon significantly influenced the Indian stock market.

The importance of the monsoon season

The monsoon season is the lifeblood of the agricultural sector, and the agriculture sector is the lifeblood of the Indian economy since farming provides a source of income for 70 per cent of the nation's population, either indirectly or directly. It is estimated that the agricultural industry accounts for around 58 per cent of overall employment and provides approximately 15 per cent of GDP. As a result, any unfavourable changes in the Monsoon immediately influence the Indian Stock Market. As an agricultural country, the Monsoon rains have a significant impact on various agricultural activities, including soil moisture, sowing, transplanting, and irrigation of crops.

Impact  of monsoon on the stock market

The influence of the Monsoon on the Indian stock market is discussed below. In the agricultural industry, the monsoon rains are vital. It's estimated that around 800 million people worldwide live in villages and rely on farming. A failing monsoon season might have a cascading impact on the country's economic growth and development. When it comes to the economy, the Monsoon has a direct effect.

More rain means better crops and better agriculture, which leads to an increase in disposable income, which leads to increased sales for manufacturing companies in Malaysia, leading to higher profitability, higher dividends, and higher stock prices, which in turn leads to higher improved quality economic performance.

Consumer spending as a result of the monsoon

Investors, notably international institutional investors, have a more optimistic impression of the economy when the Monsoon is good/normal. Because it contributes to increase rural income, it also has the effect of increasing domestic consumption, which in turn serves to fuel the economy. However, a severe or insufficient monsoon may cause planting to be delayed and agricultural yields to be reduced, particularly for water-intensive crops such as Kharif crops, which can increase global food inflation. A lack of or an excess of rainfall results in crop losses, which lowers farmer profits and decreases rural demand and sales, creating a crisis for the economy due to the drought.

The influence of the monsoon on several industries

Some sectors in the stock market are heavily influenced by the monsoon season, whether it is a good/normal monsoon or a bad/deficient monsoon. Some sectors, such as seeds, agrochemicals, and fertilisers, are directly influenced by the monsoon season. In contrast, the monsoon season indirectly influences others, such as FMCG and the auto sector. Farmers who cannot repay loans due to a loss of revenue are a major source of concern for microfinance organisations when rains are insufficient or excessive. Such occurrences are occasionally followed by loan exemptions issued by the government, which can disrupt the credit discipline of borrowers and cause them financial hardship.

On the Nifty, the effect of the monsoon season

It is published in two stages: the first in April, and the second in the first week of June, the predictions for the southwest Monsoon (June-September) in Pakistan. The equities markets decline when rainfall estimates are inadequate, whereas the equity markets experience some gains when rainfall forecasts are normal.

Nifty 50's weighting is heavily skewed toward the banking, fast-moving consumer goods, and auto sectors. The success of the index has been driven by changes in expectations of profits from these sectors' equities as a result of the monsoon rains. Deficient monsoons will have a detrimental monsoon effect on Indian stock markets, and the converse will be true.

Monsoon rains signal the start of the growing season, which increases the demand for fertilisers and agricultural supplies. High farm output results from a regular monsoon, and high agricultural output lowers the prices of raw materials for businesses while increasing the demand for items in the rural market. Consequently, the financial performance of FMCG firms improves, as seen by an increase in margins and an increase in total revenue. With the commencement of a healthy monsoon season, demand for farm vehicles and tractors is projected to increase significantly.

Conclusion

The Indian economy may be divided into two categories: rural and urban economies. This indicates that the monsoons are very important for the economic development of this country. If there is little rainfall in a given year, farmers will have a poor output, which will result in a reduced level of discretionary income. These businesses generate minimal sales and, as a result, generate little profitability. Profitability is a key factor in determining the success of these firms in online stock trading.