Too early to say if sub-par monsoon will dent market sentiment: Analysts

While weather forecasters remain divided on how the monsoons will play out in India over the next few months, analysts believe the news at the current juncture – at best – can trigger a knee-jerk reaction in the markets. They believe it is too early to say whether the sub-par monsoon on account of El Nino can seriously dent the market sentiment in the short-to-medium term.

"These are just initial forecasts and we will have another round / status update from the weather forecasters a month down the line. It is too early to say with certainty that the news right now will have any serious implication for the market and can dent the overall sentiment," said Gaurang Shah, senior vice-president at Geojit Financial Services.

India, according to the Indian Meteorological Department (IMD), is expected to see a normal monsoon this year with a long-period average (LPA) of 96 per cent between June and September. It also added that El Nino's impact might be felt during the second half of the monsoon season. Historically, 60 per cent of El Nino years have been normal monsoon years.

Private weather forecaster Skymet, on the other hand, has predicted 'below normal' rainfall this monsoon with an LPA of 94 per cent.

India defines average, or normal, rainfall as between 96 per cent and 104 per cent of a 50-year average of 88 centimeters (35 inches) for the four-month season beginning June. Typically, if the rains are between 90 to 95 per cent of LPA, it is classified as below normal.

"An analysis of Skymet's rainfall predictions in April month of the year does not inspire confidence. The actual rainfall during the past five years has been either much higher or lower compared to the Skymet first predictions. The difference ranged from a shortfall of 9.4 per cent in 2018 to an excess of 18.2 per cent in 2019. On an average, thus, the actual rainfall has been 4.6 per cent higher than Skymet’s April projections," wrote analysts at Motilal Oswal Financial Services in a recent note.

Experts say that the volume of rainfall, its timing and dispersion will crucially influence crop sowing, output and prices. Since reservoir levels are healthy by historical standards, a mild delay or sub-par monsoon in June 2023, according to Aditi Nayar, chief economist, head - research & outreach at ICRA, may not be very challenging.

"In the event that the monsoon turns out to be below normal, we currently foresee a downside of up to 50 basis points (bps) to our gross domestic product (GDP) growth forecast of 6 per cent for fiscal 2023-24 (FY24)," Nayar said.

From the markets standpoint, the immediate trigger, analysts said, is how the January – March 2023 quarter (Q4FY23) corporate earnings season plays out, commentary by India Inc on the road ahead and other global cues

"It is too early to say that the monsoon-related developments right now can dent market sentiment. That said, irregular rains with poor spatial distribution will have more serious implications for the markets than a deficient monsoon or a delayed monsoon. There are several other factors such as interest rate trajectory of global central banks, geopolitical situation and corporate earnings back home that will have a more pronounced impact on the markets in the short-to-medium term," said A K Prabhakar, head of research at IDBI Capital.

Among sectors, fast moving consumer goods (FMCG), auto (entry-level cars, two-wheelers and farm equipment), discretionary spending are some of the sectors, Shah of Geojit feels, will get impacted in case the rainfall in the monsoon season does fall short of expectation.