The main challenge before the market is the poor performance of the monsoon, till now, said V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Currently, 29 of the 36 IMD subdivisions have reported deficient rainfall. These are early days and this deficiency can be compensated in the coming weeks as has happened in the past.
The concern is that this year the El Nino phenomenon may impact the monsoon. If that happens, growth will be impacted and food inflation will rise. This will adversely impact the stock market. So, the monsoon must be tracked closely, Vijayakumar added.
EL Nino seems a distinct possibility with both IMD and Skymet indicating it to play out in August/September.
Although the IMD is still expecting near normal rainfall, past data suggest reasonable chances of a deficient monsoon, which can have adverse impact on the Indian agriculture and economy, said Amnish Aggarwal, Head of Research, Prabhudas Lilladher.
Aggarwal said rural demand is also showing signs of a gradual pickup post strong Rabi crop and declining inflation, although El Nino remains a big risk.
“We remain optimistic on auto, banks, capital goods, hospitals, discretionary consumption and building materials. We believe El Nino and consequent increase in inflation and 2024 general elections are key risks to our call,” he said.
El Nino can lead to weaker monsoon and hence a threat of poor Kharif crop. Poor Kharif crop can increase food inflation and delay rural demand recovery, Aggarwal said.
Poor rainfall in August and September will reduce soil moisture which can impact the Rabi crop output.
Good Rabi crop, normal monsoon and capex push of the Government of India should enable strong growth despite geopolitical uncertainty and weak outlook. FY24 GDP growth is projected at 6.5 per cent with Q1 at 7.8 per cent, Q2 at 6.2 per cent, Q3 at 6.1 per cent, and Q4 at 5.9 per cent, he added.
Ravi Singh, Vice President and Head of Research at ShareIndia, said that earlier monsoon was expected to remain normal in India, but now due to the impact of El Nino and Cyclone Biparjoy, monsoon may be weak over the next four weeks.
Southwest monsoon reached Kerala on June 8, a week later than expected.
Singh said this will have negative impact on agriculture and on the economy at large.
Agro-chemicals and fertiliser companies, FMCG, and microfinance companies will bear the brunt of weaker monsoon.
“On the other hand, consumer durable companies may benefit from weaker monsoon as demand for ACs, coolers, fans, and switches will rise. So, we conclude here that bleak monsoon will impact retail investors and FPI inflows at large,” Singh said.
Ravi Singhal, CEO, GCL Broking, however, said the monsoon has begun to behave properly.
“There has only been a five-day delay up to this point. After the Biparjoy Cyclone, the monsoon may also be accelerated.
“However, there is only one cause for concern. The El Nino effect, which can result in occasional rainfall deficits. Then it will undoubtedly have an impact on the Indian stock market, particularly rural economy equities such as FMCG and tractor stocks,” Singhal said.
(Sanjeev Sharma can be reached at Sanjeev.s@ians.in)
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