These monsoons are very crucial because a large segment of the Indian economy and the farming sector in particular, rely on these. As the Indian Meteorological Department (IMD) predicts the probability of excess rainfall this monsoon season in 2024, people are eagerly waiting to know the effect of this on the Indian stock market. This blog focuses on the importance of monsoon, its importance, features, and impact on the stock market as well as its impact on different sectors, along with suggesting the best stock advisor in India.
The Agriculture: Backbone of India
India is acknowledged as a land of agriculture when its huge background in agriculture coupled with its contribution to the international market is considered. Agricultural production plays a strategic role in the country’s economy as it provides employment in the region of more than 50 % of the working population and contributes immensely to economic development by providing a significant % of the GDP. As such, the monsoon season is critical because it has an immediate impact on agriculture production and the economy.
The Role of Monsoons in India
Monsoons are essential to the agricultural industry in India since farmers depend on water levels from monsoons to water their crops. Thus, a normal or above normal monsoon means sufficient rainfall will help in good crop production, stable prices of food and increased incomes in the agricultural sector predominantly in the rural areas. This, in turn, increases the purchasing power of consumers and has positive effects on many sectors ranging from retail and consumer goods to agro-based industries dependent on rural markets.
Defining a Normal Monsoon
IMD divides monsoons by distinguishing them through the Long Period Average of rainfall generally over 50 years. Rainfall is classified as:
- Deficient: Below 90 % of LPA
- Below Normal: Between 90 % and 96 % of LPA
- Normal: Between 96% LPA and 104% LPA
- Above Normal: Between 104 % and 110 % of LPA.
- Excess: Over 110% of LPA amounts to excessive rainfall
IMD has predicted for the year 2024 the level of rainfall as 106% of LPA which means the monsoon will be above normal which will be beneficial for the economy.
How Monsoons Can Influence the Stock Market?
Monsoons are directly linked to India and its economy and thereby to the stock market as well. Appropriate rainfall is helpful to the agricultural sector providing a base for rural India, where more than 60% of the population resides. Monsoon season remains a critical factor due to its usefulness to the country’s economy. Favorable monsoon increases agriculture capacity and improves various economic sectors in the market.
Positive Impacts of Monsoon on Different Sectors and Stocks
Take a look at the impact of monsoon on various sectors and stocks
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Agriculture and Allied Industries:
Higher than the average levels of rainfall increase agricultural output and enhance the operations of businesses involved in equipment manufacturing, and the sale of seeds, fertilizers, and pesticides. For example, firms dealing in farm equipment and, firms dealing in agrochemicals are usually benefited through an increase in stock prices in a good monsoon period.
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Consumer Goods:
A higher yield of agricultural produce boosts the purchasing power in the agriculture sector, especially the consumption of consumer goods. That is why a number of consumer goods companies record increased sales and better performance of their stocks during monsoon.
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Automobile:
Hike in rural income leads to better sales of two-wheelers, tractors and small cars which in turn will be useful for manufacturers who are producing such automobiles.
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Banking and Financial Services:
Higher agricultural productivity lowers the credit risk of farmers and thus increases the value of the loan portfolio of banks in the country with large operations in rural areas.
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Retail:
A higher-than-normal monsoon not only increases the incomes in the above-said sectors but also enhances the economy as a whole. Therefore, with improved income held by the rural populace, this means improved consumption, improved demand for products across the different industries and hence improved feelings on the stock market. This life cycle of growth illuminates the importance of monsoons in the structure of the growth of India’s economy.
Broader Economic Impact
Not only do some selective sectors benefit but even the overall growth of the economy is affected by an above-normal monsoon. Higher incomes in rural areas translate to a higher purchasing power which creates spending in different sectors which leads to positive sentiment in the stock market. Talking about the significance of monsoons, this high growth cycle depicts the significance of the climate to India’s economy.
Thematic Investment: Monsoon 2024
Among the thematic investments, those related to the monsoon can be highly beneficial, as the IMD predicts that the year 2024 will be above normal in terms of rainfall. Based on the analysis done above, the investors are advised to focus on the stock markets of such industries that have the potential to gain from the enhancement of production of agriculture as well as a rise in expenditure within the countryside. Currently, the best stock advisor in India, Wright Research recommends investing in core sector commodities in line with monsoon-related products including fertilizers, pesticides, farming machinery, and consumer etc.
Stocks to Watch
- Leader in agricultural equipment.
- Major players in agrochemicals.
- Key players in the FMCG sector.
- Leading manufacturers of two-wheelers, tractors and other related vehicle companies
- Dominant players in entry-level cars.
- Banks with Rural Exposure or lending loans to farmer
Conclusion
The positive economic effects of monsoon with above-average rainfall are expected to be felt in the year 2024 for the Indian economy, particularly the stock market. Thus, it enables positive changes within the agricultural sector and related industries, which creates a foundation for general economic development. Based on a positive monsoon expectation, this is the time that investors should consider going for thematic investment in sectors of the economy likely to benefit from a favourable monsoon.
Wright Research is the best stock advisor in India that has been changing the Indian way of investing. Thus, they rely on structured and analytical data and numerical analytics, which allow them to give recommendations based on the specifics of the Indian context. While we are in the middle of the rainy season, Wright Research remains prepared to assist the investors with proper decisions.
Connect with Wright Research now to know more and get the most out of the Monsoon Session of 2024 for investment gains.
