Monsoon deficiency spells doom for the markets?

The importance of monsoon for the Indian economy is well known to the world. This year monsoon has played truant thus far, and this does not auger well for our economy and the stock market. For the first time we have the official word on GDP growth falling below the 6% mark for first 2 quarters of FY12-13, both Kaushik Basu and Montek Singh Ahluwalia have echoed this negative outlook. The monsoon deficit for the months of June-July has been over 20% of the long term average. RBI monthly review has also laid emphasis on the inflation factor which is likely to worsen in the absence of adequate rainfall. Almost 50% of our arable land is in the grip of the worse drought in past 10 years.

So far the markets have turned a blind eye to the monsoon factor, in the hope of some big ticket reforms from the Govt. World markets have also held firm in the hope of the elusive QE3 package. But these hopes are diminishing day by day and our stock markets will react to the extremely negative growth outlook sooner than later. Indian economy is plagued with an unusually high fiscal deficit coupled with high inflation and higher interest rates. In such a scenario the broader indices are likely to crack by 10-12% in the near future, but the impact would be severe on the monsoon sensitive sectors that are highly dependent on the rural demand. Investors are advised oi steer clear of these sectors: Banking & Finance, Agrochemicals & Fertilisers, Auto motives & Auto components, and FMCG.

Now for some crystal gazing through Astro analysis. As written by me in my earlier posts the first phase of monsoon was predicted to be bad. But there are signs of a recovery in monsoon rains towards the fag end of the monsoon season in the month of September. The impact of the late recovery would be seen in the performance of the companies from 3rd quarter of FY12-13, which may coincide with the much awaited rate cuts by RBI in Sept.-Oct 2012. The second half of the current fiscal could see a remarkable turn around in the fortunes of the Indian economy. Investors are advised to utilise any downturn in the equity markets to invest into their favourite scrips. In the past few years Real estate and Precious metals have given sterling performances, but 2013 promises to be the year of Equity investment.