With a majority of the Indian Rural population dependent on agriculture as the primary means of livelihood, a strong monsoon means good news for the agricultural sector as well as for the economy as a whole.
Even today, owning to the lack of penetration of irrigation facilities, the Indian Farmers still heavily depend on rain water to nourish their crops.
Good Monsoons and the Stock Markets
How a strong monsoon can impact the stock markets can be seen from the following discussion:
1. A boost in rural demand: Water is the most critical input for enhancing agricultural productivity. A good monsoon therefore translates into good agricultural production which means better earnings (read purchasing power) for the farmers.
A good monsoon boosts Rural consumption and demand which is a positive for the entire economy.
Industries which directly benefit from this increase in rural spending include Automobiles (primarily two wheelers and tractors) and FMCG (Fast Moving Consumer Goods) among others.
Good monsoons lead to an increase in agricultural output – which translates into an increased demand for Light Commercial Vehicles (LCVs) needed to transport the agricultural produce from the farms to the market places/storehouses.
Also, industries which are directly dependent on agricultural activity like Fertilizer and Farm Equipment Providers also get a significant boost from a good monsoon season.
2. Export Boost: Agricultural produce forms a major chunk of India’s total exports. Increased agricultural productivity brought about by a good monsoon translates into more exports and a reduction in the import of agricultural produce. This helps the country earn valuable foreign exchange, improves its balance of payments and is a positive for the entire economy.
Overall, a strong monsoon augers well for the stock markers and the economy as a whole.
So the next time a weather department guy tells you that the monsoons are expected to be great this year, expect the stock markets to rise.
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