Markets have shrugged off poor monsoons in last decade..hence no problem?

In Indian economy, stock markets are a test for anything and everything. Whether any policy/event is good or bad is justified by stock markets. Rest does not matter.

Once again, there are predictions that monsoons are likely to be bad this year too. Ideally, given the pathetic state of agriculture and farmers, one would expect markets to react negatively. But this is not how it has fared in the past. Infact, it has ignored the bad monsoons in last decade. But history cold be tested this time:

Markets gave double-digit returns in 3 of the past decade’s worst monsoon years but the resilience will be tested this time.  The stock markets have not always followed the same trend as the monsoons in the past decade. Returns have ranged from 13 to 81 per cent during times of rain shortfall in these years.

However, this seems unlikely to continue in 2015. The stress of two years of rain shortage, the attendant negative sentiment and some earnings pressure bodes ill for returns this year, say experts.  “There have not been two years of bad rainfall in a row. If the monsoons are bad this year as well, there could be a major problem even in the irrigated areas, as groundwater levels would have been depleted. The markets are likely to be impacted,” said G Chokkalingam, founder & managing director, Equinomics Research & Advisory.

“In 2009, Indian equity markets were in recovery mode after a major selloff in 2007-08, so the rise was off a small base. Similarly, the markets had begun to rise in 2003-04, after a long consolidation since October 2001. Now, we are sitting on a large base, with markets having risen to all-time highs. So, even a small negative trigger can play spoilsport, though, traditionally, the impact of deficient rainfall has not been very large,” said Deepak Jasani, head of retail research at HDFC Securities.

2009 was one of the best years in terms of market returns, despite a poor monsoon. The S&P BSE Sensex gave a return of 81 per cent. Two of the other worst monsoon years also saw double-digit returns, according to an analysis of data from the stock exchanges and monsoon data from a report by Edelweiss Securities.

The next worst year in rainfall was in 2014, at only 88 per cent of the long period average (LPA). The market returns were 29.9 per cent. The year 2004 saw rain at 91 per cent of the LPA and the market return was 13.1 per cent.

Only if markets had reacted negatively previously things could have been better in terms of our agri policy. That is how the country has been governed for many years now..


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