The progress of the monsoon is a crucial near-term trigger for equity investors as it has a bearing on various macroeconomic parameters such as food inflation and rural demand. It also has consequences for companies in the automobile, fast-moving consumer goods (FMCG) and paints sectors, all of which have significant exposure to rural markets.
Cumulative rainfall as of 26 July was 3% above the long-term average (LTA), while weekly rainfall as of 24 July was 41% above the LTA, showed data compiled by Emkay Global Financial Services.
However, the distribution of this rainfall has been uneven, with central India and the southern peninsula recording a surplus, and north, west and east India in a deficit so far. A pick-up in the monsoon over northern India is crucial because of crop-sowing activities in the region. Usually, nearly 80% of sowing is completed by the end of July.
Inflation measured via the consumer price index rose to 5.08% year-on-year in June, from 4.75% in May, owing to high food inflation. Vegetable prices have remained elevated and sticky, with excess rainfall following extreme heat. "Vegetable prices may decline from August if new supply comes to the market, but that will depend on the distribution and intensity of the monsoon,” said the Emkay report dated 27 July.
