Are you wondering how monsoon affect stock markets and so your earning? The monsoon rains are essential for farming and agriculture sector contributes hugely to the economic growth in India.
India is the world’s second-largest producer of rice, wheat, sugar, and cotton. More than 58 percent of rural India depend on agriculture as their principal means of livelihood. Agriculture, along with fisheries and forestry, is one of the largest contributors to the Gross Domestic Product (GDP).
India is the largest producer, consumer, and exporter of spices and spice products and second largest fruit producer in the world. It is self-sufficient in major foodgrains such as rice and wheat, but drought increase the prices of agri-commodities and as a results inflation shoot up.
Higher farm output helps the government to take steps to cut the expenditure. Stronger economic conditions can lift sentiment of the investors in stock markets, especially in consumers goods and automobiles sectors. Monsoon rains lift the groundwater levels which leads to better irrigation. But what is the real effect due to the monsoons on the stock markets?
But what is the real effect due to the monsoons on the stock markets?
Monsoon Affect Stock Markets
Good monsoon improves the rural demand for products. As your purchasing power increases, companies such as HUL, Dabur, Godrej Consumer, and ITC benefit a lot due to increase in sales. The demand for two-wheelers, low-cost cars, and tractors also increase during a good monsoon. As a result, you can see stock prices of companies like M&M, Escorts, Eicher, Maruti, and Bajaj Auto also rise.
Because of higher production in farm-related products that also lowers the raw material costs for industries involving in manufacturing packaged foods. Companies like Britannia, ITC, HUL, and others are the most beneficiaries. So, you can find the correlation between better monsoon and FMCG companies.
Fertilizer and irrigation companies such as Chambal, RCF, Jain Irrigation, etc. get a direct boost due to better rainfall. Once the rains support better agricultural output, you can see the gains in the manufacturing and services sector as well.
Once the rains support better agricultural output, the windfall gains are witnessed automatically in the manufacturing and services sector as well. So, better monsoon leads to increase in disposable income and as a results increase sales in manufacturing and services companies. You can expect the higher profitability of the companies and may get dividends, as well as the stock price, appreciate.
So, better monsoon will certainly make the stock market more attractive to investors. If you want to know more about stock market fundamentals and technical do write in the comments below.
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Published on: Oct 6, 2017