Monday, 27 June 2016

Will the Weather Gods be kind to Dalal Street?

At a time when Dalal Street traders are fretting over the potential impact of Britain’s shocking decision to exit the European Union, some help from the heavens above may quell the ongoing volatility at domestic bourses and offer a major boost to Asia’s third biggest economy.

Yes, the focus is firmly on the progress of the Southwest Monsoon which is set to pick up pace in the coming days, cheering farmers, lending a boost to agricultural output and signaling higher rural demand.

If the monsoon pans out as predicted, increased farm incomes will be welcome news  for shares of automobile, agro, cement,  consumer durable and FMCG companies as demand from rural India, that makes up for almost 70 per cent of the country’s population, strengthens.

The India Metrological Department (IMD) has forecasted an above-normal monsoon for 2016 at 106 per cent of the Long Period Average (LPA), a massive relief after two straight years of sub-par rainfall. In its latest prediction, the country’s weather office sees monsoon rains ending later than usual this year.

A strong monsoon will boost agricultural GDP, helping the sector perform to potential, while enabling India to consolidate its position as the world’s fastest growing major economy by pushing growth close to the 8 per cent mark in FY 2016-17, bolstering the appetite for the country’s financial assets including equities.

Further, above-normal rainfall may help rein in inflation as prices of key food items are kept in check, giving the RBI more room for monetary accommodation to bolster demand and growth.

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