How does Monsoon impact on Indian Stock Market ?

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It’s June and stock Market Trader seeks answer to Monsoon impact on Indian Stock Market? Will the rain be well distribute? Will the rain arrive on time and all such questions that disturb the Traders mind. The rainfall and the monsoon are considered to be the biggest cause for the economy and the markets.

India is considered to be agrarian economy with the livelihood of 70% of the population is dependent on the land they cultivate. The agriculture sector contributes about 18% of the GDP and 58% of employment. The indirect effect on the economy is quite higher.

☂️How Stock Market have reaction to the Monsoon?

We can make out the Impact of Monsoon on Indian stock market by seen the monsoon data since the year 2000 to get correct picture of it. Looking at the data it was observed that monsoon was just 10% below the long term average.

The Two of the biggest falls were observed in the year 2009 with Shortage of the rains fall by 21.8 percent, followed by the year 2002 when monsoon fell short by 19.2 percent. In the year 2004, 2012 and 2014 the rainfall was short by around 13 percent.

In order to check the Impact on the market, we divided the year in two parts. The first group is between April and September and the second group falls between October and March. The logic behind doing is that because by April early predictions start coming in on monsoon expectation and budget impact fizzles out in a month. Similarly by October monsoon impact is clear and the corporate and industry numbers start showing the impact the poor monsoon had on the economy.

☂️ SENSEX RETURNS DURING POOR MONSOON YEARS

Year April to September October to March
2002 6.81 61.87
2004 8.95 30.64
2009 1.35 15.86
2012 -0.16 9.15
2014 1.02 -5.99

 

The biggest shock in the data is in the year 2009, which saw the biggest drop in monsoon but the markets blast up by 76.41 percent in the first half. Second half was flattish as food grain production touche 218.11 million tonnes as compare to 234.47 million tonnes in 2008.

☂️ Reasons for lesser Monsoon Impact on Indian Stock Market

  • The falling contribution of agriculture to GDP. Contribution of the sector to GDP has fallen from 25 percent to 18 percent.
  • The dependence on rains for agriculture is reflect in the lesser drop in food grain production. The Better irrigation, shifting to crops requiring less water, adoption of technology and contributed in reduce the impact of monsoon.

Lastly to conclude the Monsoon impact on Indian Stock Market is that  monsoon might not be as bad as the general market observation is, especially during the first half of the financial. But, one needs to be careful in the second half of the year when actual data starts impacting the market.

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