Does the monsoon season effect planning of your finances? Does this question come as a surprise to you? Well, monsoon has a great deal of influence on equity portfolio. This year, experts feel, monsoon will have an effect in investing stocks.
The scanty monsoon during the last few years has affected agriculture adversely, but the hope that this year’s monsoon will be successful leads experts to think that the agriculture sector should do well.
Now look at how monsoon and crops affect the economy. A delay in rain will delay planting activities, in turn delaying the harvest. This will translate to smaller yield of food crops such as rice, wheat and sugarcane. Basic laws of economics tell you that the lower the supply of a commodity, the higher will be its price. So naturally, the next thing you will see is higher food prices.
The current level of inflation is 6.3% which is a remarkable improvement from the earlier years. But this figure is high since it exceeds the CPI (consumer price index). The RBI has been on its toes monitoring and controlling inflation. The RBI has also lowered the interest rates allowing businesses to borrow, which is good for the growth of the economy. A good monsoon helps borrowers pay back loans on time.
A bad monsoon results in a delay in payback of loans farmers to banks and non-banking finance corporations (NBFCs), a situation that would unduly stress the financial sector. A good monsoon on the other hand positively affects recovery and credit growth. Rural sales dominate growth in the fast moving consumer goods (FMCG) sector. A favorable monsoon can boost FMCG volume growth by 10-12 per cent, most of this impacting the sales of autos. In fact, two-wheeler and tractor sales volume can be affected by 15 per cent.
And then let’s not forget the dire effect that power cuts have on businesses. Production can be brought down significantly if not to a complete halt.
So, if monsoon is a criterion for investment, think of buying auto, agro-chemical, banks and NBFC stocks.
Too much diversity for your portfolio? Let’s pray to the Gods to bestow us with a good monsoon and also a good strategy to diversify risks.