Markets In June 2016: Movers & Shakers Of The Month (Part 2/3)

After covering Rexit, and the FDI changes which were perceived as by many as a move to blunt the hangover effects of the Central Bank Governor, Raghuram Rajan’s unexpected exit decision from his office, we now bring to you the Part 2/3 of our June 2016 monthly newsletter. Have a look at the our topic in focus:

Monsoon Onset

• 2016’s best news for India has been the “above normal” rainfall that the IMD has predicted after two consecutive years of droughts. Rainfall, which is the lifeline for lakhs of farmers in India, has been disappointing for the past two years, is expected at 106% of the Long Period Average (LPA).
• In India, LPA is the average of rainfall between 1951 and 2000, which is 89 cm. A “normal” monsoon is one when rainfall is between 96-104% of the LPA. An “above normal” monsoon occurs when rainfall remains between 104-110% of the LPA, which is expected in 2016.
• Here is why India may receive high rainfall this year:
  1. According to a Skymetweather report, a stagnating El Nino and an evolving La Nina will be one of the reasons for excess rainfall. The increase in El Nino was the reason why our country faced repetitive droughts for two years. However, this year, El-Nino is on the decrease and La Nina is on the increase hinting better rains. Generally, La-Nina after El-Nino has great potential of excess rainfall.
  2. The Indian Ocean Diapole (IOD) another critical factor that impacts the monsoon is also expected to turn positive during the second half of the 2016 season.
  3. The third factor that is that snow formation in the Himalayas has been encouraging, which has been proven to decide the fate of monsoons in Southeast Asian countries.

This will enable agriculture and allied activities to grow at an expected 1.1% in FY16 against of (-ve) 0.2% in the previous year. Higher farm sector growth would push up India's overall economic growth, officially pegged at 7-7.75% (unofficially at 8.1%) in the current financial year against 7.6% in FY16.

For an economy like India, a good monsoon holds the key to uptick in the rural demand. A good monsoon will trigger high rural wage growth and spark off rural spending, which will in turn mark earnings recoveries in many of the Indian companies. This also gives more money to the farmers and keeps the inflation in check by increasing supply of food articles, thereby calming the increasing food prices. In a nutshell, keeping inflation in check also raises the expectation for another interest rate cut by the RBI.

• Here are some of the sectors that are expected to benefit from a good monsoon:
  1. Two wheelers (Almost All Automobiles)
  2. FMCGs
  3. Consumer Durables
  4. NBFCs
  5. Fertilizers (All Agri-Related segments)
  6. Irrigation

This time, the southwest monsoon in Kerala arrived almost a week late on June 8. Last month saw the country as a whole received an area-weighted rainfall of 145.4 mm, which was 11.1% below the "normal" LPA of 163.6 mm for June.

But there has been a huge turnaround in the last few days, so much so that the Met Department’s data now reveals a cumulative rainfall from June 1 to July 6 at 218.2 mm, which is a surplus of 1.3% over the LPA of 215.3 mm for this period.

Stay tuned for the Part 3/3 which will be covering the "Fed Rate Hike Impact On India", "The Market Performance" & "Concluding Thoughts On Our Stock Market" after the events in June 2016.

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