Market returns rarely move in lockstep with monsoon rain, shows data

Earnings, tariffs likely to be more keenly watched

A shortfall in monsoon rains has seldom translated into poor market returns, and abundant rainfall hasn’t necessarily led to significant gains.

 

Data since 2005 show that the five years with the highest rainfall saw average market returns of 8.98 per cent, while the five driest years returned 25.7 per cent on average. 

The India Meteorological Department on Tuesday forecast this year’s monsoon rainfall at 106 per cent of the long-period average (LPA), with a broadly even distribution across much of the country. “…normal to above normal rainfall is very likely over most parts of the country except some areas of Northwest and East India and many areas of Northeast India where normal to below normal rainfall is very likely,” it said.

 

The years 2013, 2019, 2020, 2022, and 2024 saw rainfall ranging from 106 per cent to 111 per cent of the LPA, with median calendar-year returns of 8.98 per cent and annual returns ranging between 4 per cent and 16 per cent. 

In contrast, 2009, 2012, 2014, 2015 and 2018 saw rainfall between 78 per cent and 93 per cent of the average, yet the median return for these years was 25.7 per cent. The lowest return during those drier years came in 2015, at -5 per cent; the highest was in 2009, when the market surged 81.03 per cent amid a post-global financial crisis rebound, even as rainfall was just 78 per cent of the LPA. 

Global liquidity, earnings, and broader economic activity often have a greater impact on market performance than monsoon rainfall, according to experts. 

“Barring any extreme differences with the LPA, rains have a limited impact on the market,” according to Satish Menon, executive director at Geojit Financial Services.

 

He added that the markets have recently run a little ahead of fundamentals and that corporate results in the coming quarters are likely to serve as a more meaningful trigger than the monsoon. “Global factors like tariff war, the US budget (which made sweeping changes, including tax cuts and other policy changes), and the movement of the dollar may also have some impact on the emerging markets,” Menon added.

 

Monsoons do impact the rural economy, which can affect consumption-related stocks, but the overall market is unlikely to hinge on rainfall alone, according to Manish Sonthalia, director and chief investment officer at Emkay Investment Managers. “It’s not the only determinant of market performance.”

 

Sonthalia expects markets to remain range-bound until the tariff issue is resolved, likely by July. He noted that corporate earnings this season were initially expected to be weak, but performance in some segments has exceeded expectations.

 

While large-cap companies represented by the Nifty 50 index posted about 5 per cent year-over-year earnings growth, small and midcap companies have delivered double-digit gains. “I think earnings season has been pretty decent,” he said. 

 

A lower share of agriculture in the economy may also limit the impact of monsoons. The share of agriculture in gross value added (GVA) was 24.19 per cent in 2003-04. This has seen a steady decline to 14.41 per cent as of 2024-25.