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By DK AggarwalMonsoon rains are the lifeblood for the Indian economy, and account for two-thirds of employment and contribute around 16 per cent to the nation’s gross domestic product.
India Meteorological Department’s (IMD) projection that India will witness ‘normal’ monsoon rains this year has brought cheers to the agricultural sector.
As per IMD, India will receive 97 per cent of the long-period average rainfall this year with a model error of plus/minus 5 per cent.
This will be the third consecutive year of normal monsoon after two successive droughts in 2014 and 2015.
A good monsoon creates positive perception about the economy among market participants, including foreign institutional investors, as many sectors depend on monsoon rains either directly or indirectly.
Equally distributed rains are good for overall macros, as agriculture has strong linkages with industrial and services sectors, plus a direct bearing on the rural economy and consumption.
However, the case was slightly different with regard to consumption demand last year.
Despite a normal monsoon, consumer demand was affected by the demonetisation drive, which was announced on November 8, 2017.
The impact of demonetisation has since been waning and with a normal monsoon this year, rural consumption should pick up again.
The World Bank recently said the Indian economy has recovered from the impact of demonetisation and GST and would grow at 7.3 per cent in 2018 and 7.5 per cent in 2019.
If IMD’s rain predictions are accurate, the agricultural sector is set for a big boost.
It will have a positive impact on the rural economy ahead of the crucial general and state elections in 2019 and keep inflation within the target range.
A stronger economic outlook should lift market sentiments, mainly for companies selling products in rural areas, including consumer goods, automobiles, fertiliser, pesticides and rural-focused NBFCs.
Companies such as MM, Manappuram Finance, Havells India, Dabur India, Marico and Swaraj Engines should see good growth going forward.
