Here's why markets needn’t fret over IMD’s deficient-monsoon forecast

MUMBAI: Indian markets are down for the second straight session on Wednesday, after the India Meteorological Department (IMD) made a forecast of deficient monsoon this year.

This holds importance as the Reserve Bank of India has said the next rate cut will largely depend on monsoon strength. Banks and other rate-sensitives such as auto and realty sectors are being beaten down on the bourses.

The IMD on Tuesday said there is a 90 per cent probability of El Nino during monsoon, and 66 per cent probability of deficient monsoon rainfall. Its experimental model shows monsoon rain at 86 per cent this year.

The Sensex, in a knee-jerk reaction, has corrected over 700 points in two sessions. However, IMD’s early predictions have been far from accurate in the past.

According to an ET Now analysis, IMD's early prediction of monsoon has been right only six times in the last 21 years.

In 2013, IMD had predicted a slightly weak monsoon, but it turned out to be a drought. In 2012, it forecast below-average rains, but the Indian subcontinent got rains well above average. In 2009, the IMD had predicted a normal monsoon, but India got its worst drought in nearly four decades.

Also, it has been observed that there is no direct correlation between actual rainfall and market performance. The Nifty had surged 76 per cent and 31 per cent in 2009 and 2014, respectively, despite these being drought years.




In a stark contrast, private forecaster Skymet has rather bullish predictions.

Jatin Singh, CEO, Skymet, is still sticking to 102 per cent monsoon prediction. According to him, rainfall will be sufficient in June as well as July.

"Seems IMD is over-weighing El Nino impact on monsoon," he told ET Now.

According to Manish Sonthalia, Senior Vice President & Head - Equity Portfolio Management Services, Motilal Oswal Asset Management – PMS, it doesn’t seem that agriculture is going to dampen the economy in a very big way.

"In the past, Nifty has shown that there is no one-on-one correlation between market returns and failure or success of monsoon. Sentiment-wise, we are headed for troubled times or uncertain times. We will have to wait and see how monsoon pans out," he told ET Now.