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Monsoon Forecasts And What Do They Mean for Stock Markets...
Thu, 11 May Pre-Open

Rains are extremely crucial to the Indian economy. This point cannot be emphasised enough as the wellbeing of a disproportionately large number of India's population depends on how the rain gods fare.

The importance can be warranted with how the forecast of a normal rainfall spurs optimism across the country.

So when the Indian Metrological Department (IMD) forecasts reported above average monsoon rainfall in 2017 earlier this week, the excitement was seen across various markets.

Above normal rains in the upcoming monsoon season could help revive the rural demand which has remained subdued since long.

Given our high dependence on monsoon rains, the agricultural sector is the most vulnerable to the changing rain patterns.

So a normal monsoon will lead to higher disposable income in the hands of farmers, which in-turn will boost the rural consumption.

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To add to this, a normal monsoon will also help to keep the inflation at low levels. The possibility of a good monsoon would also increase the chances of the country's central bank retaining its easy money policy.

However, there have been many instances in the past wherein the forecasts have gone wrong. So one should not blindly rely on the above predictions. Only time will tell how the above developments pan out.

However, what does the above predictions mean for the stock markets?

Going by the present sentiments it seems that the above predictions have pushed the ongoing rally for domestic stock markets.

Stocks with a rural focus are in the limelight. Among them, FMCG companies, which are less capital intensive and better cash generators than fertilizer and two-wheeler companies, have caught the investors' fancy.

Nonetheless, we believe the above forecasts aren't seemingly favorable reasons to push the markets higher. Rather a focus on bottom-up approach to investing can guarantee strong returns in the long run.

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Mar 16, 2018 (Close)