How will the monsoon impact the stock market this year? | Motilal Oswal
How will the monsoon impact the stock market this year? | Motilal Oswal

How will the monsoon impact the stock market this year?

Some sectors of the Indian stock market are inextricably linked to the country’s monsoons. And this year is likely to be no different. So, how will the monsoons this year impact the markets? To answer that, we’ll need to begin with the monsoon forecasts for 2021. Weather experts from the India Meteorological Department (IMD) predict a normal monsoon in the coming months. Given this, here’s how the stock market in particular and the economy in general is expected to react.

Impact on the agri sector

Agri stocks will undoubtedly be among the top gainers if the IMD’s predictions materialize. Experts report that stocks of companies directly engaged in agricultural activities are just as likely to benefit from the monsoons as other indirect players. This includes stocks in the agri-input and allied segments like fertilizer producers and hybrid seed processors.

An indirect boost to other sectors

Several other sectors and industries linked to the agri segment will also no doubt trade in green on account of the normal monsoons we expect. This includes companies engaged in a range of activities like auto/tractor manufacturing and crop protection, which involves manufacture and distribution of fungicides and pesticides.

A possible income boost in rural India

Rural India contributes over 50% of India’s Gross Domestic Product. An agreeable monsoon this year could boost income to these areas, thereby raising the country’s overall GDP. With more disposable income, the FMCG sector may also record a good run, as will the consumer discretionary sector.

A much-needed dampener to inflation

Favorable monsoon months could also help curb inflation, which has been a growing concern ever since the second wave of the pandemic broke out in the country earlier this year. By reducing inflation overall, the monsoon this year could benefit the market, on the whole.

Conclusion

With the rains still a few weeks away, it’s a good idea to keep an eye out on sectoral news, so you can get a front-row ticket to witness how the markets react to the news of good monsoons this year. Ensure that you follow the news regularly, so you don’t miss out on good investment opportunities.

 

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