Essentially an agrarian country, India is at the mercy of the monsoon. Any variation in the seasonal rains can lead to floods or droughts and play havoc with the country’s economy.
Hence, it came as no surprise when the stock market reacted positively to the Indian Meteorological Department’s (IMD) prediction of normal rainfall for the year. As per IMD’s long-range forecast for 2007, the south-west monsoon is likely to account for 95% of the total rainfall, give or take a 5% error.
Market players vouched on sectors like construction, FMCG and automobiles to benefit the most from a normal and timely rainfall. Many even felt that normal rainfall would boost exports from the country.
While most analysts agree that a drought in the ‘wheat belt’ or a flood in the ‘sugar belt’ has a strong bearing on the industry it caters to, the effect is rarely reflected on equity markets. One reason for this could be that Indian markets are more correlated to sectors (or industries) that are not really dependent on rainfall. IT, banking, petroleum and pharma companies form a major portion of the equities market.
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