Uneven monsoon rain distribution across the country may be a cause of worry for the equity market and consumption-oriented companies.
Indian meteorological department (IMD) and private weather forecasting agency Skymet’s forecast of less than normal rain in the second half of the monsoon season raises concern as several parts of the country, particularly the Saurashtra region in Gujarat, the Marathwada region in Maharashtra and the whole of the North-East are showing severe rain fall deficit during the first two months of the monsoon season.
If rains do not pick up pace in rain-deficit areas in the remaining days of August, which marks the end of the sowing season, then it may have a negative impact on the crops in those areas.
At the same time some states, like Kerala, have received surplus rainfall, which also is a matter of concern for analysts tracking the rural economy.
Abheek Barua, chief economist, HDFC Bank, in a report titled “Monsoon Tracker: A Slow Start to August, Rainfall Deficien-cy Worsens,” said, “state wise distribution of rainfall shows that deficiency is high in states such as Gujarat (-19 per cent of normal), Jharkhand (-24 per cent), West Bengal (-18 per cent) and Bihar (-15 per cent) as of August 8. Amongst these, Gujarat and Jharkhand could be more vulnerable (if rainfall patterns do not improve in the coming days) as more than 50 per cent of the agricultural area in these states remains un-irrigated.”
“Sowing progress remains lacking, while the increase in rainfall in the second half of July helped raise the area sown, overall sowing is still below the levels seen at the same time last year. For instance, the total sown area is 2 per cent lower than the corresponding period of 2017 as of August 3. For crops such as rice, groundnut and coarse cereals the sown area is 3-4 per cent lower than last year. Groundnut sowing is likely to have been impacted by the low rainfall in Gujarat, which accounts for 34 per cent of the total production of groundnut,” HDFC Bank’s chief economist said.
According to Care Ratings, “Kerala received the highest rainfall last week at 15 per cent above normal, which has led to the over-spilling of the reservoirs. The shutters of 24 reservoirs across the state have been opened as the catchment areas of these dams continue to receive heavy rainfall. Continued heavy rainfall in the region may aggravate the damage to areas under cultivation.”
“The monsoon has progressed strongly across the south-west coast and central India, however the spell of deficient monsoon continues on the eastern belt. After two weeks of receiving normal rainfall, Saurashtra is troubled again with deficient rainfall in the region. Heavy rainfall in parts of central Kerala has led to floods due to opening of reservoir shutters, thereby severely affecting tea, cardamom and rubber plantations in the region,” Care Ratings said.
“Area under cultivation for major Kharif crops this season is in line with the normal area sown for this period of the season, however, it has been marginally lower than the acreage recorded in 2017, which was a year of bumper harvest. The acreage for soyabean has risen sharply this season as compared with last year, while that for urad has been considerably lower,” Care Ratings said.
As per IMD’s latest data, “For the country as a whole, cumulative rainfall during southwest monsoon 2018 up to August 8, was below long period average (LPA) by 10 per cent.”
While the rainfall deficit was only 4 per cent to 5 per cent in northwest India, central India and south peninsula east, the North-east India faced 25 per cent deficit.
The rainfall activity has slowed down in the period between August 2 and August 8 and it was 33 per cent below the LPA, with three regions of northwest India, central India and south peninsula receiving 12 to 55 per cent lower rains than LPA while North-east India received 13 per cent lower rains than LPA, marking some recovery compared with preceding two months’ deficit.
According to Care Ratings, “The overall area under cultivation for the season till date is 854.6 lakh hectares, which is in line with the normal area sown in 842.6 lakh hectares for this period of the season; however, it has been marginally lower than the 2017 level (870 lakh hectares). Total area under cultivation for coarse cereals and pulses has been marginally lower, as compared with 2017.”
IMD expects rains to pick up in the latter half of August, especially in the deficient North-east India and that augurs well for consumption-oriented sectors and companies.
“Under the influence of a fresh low pressure area, which is likely to form over northwest Bay of Bengal and neighbourhood around August 13 and strong southerly winds from Bay of Bengal to North-eastern states, fairly widespread to widespread rainfall with heavy to very heavy rainfall at isolated places very likely over North-eastern states, West Bengal, Odisha, Jhar-khand, Chhattisgarh, Bihar, east Uttar Pradesh, Uttarakhand and Himachal Pradesh,” IMD said in its latest forecast for the week from August 9 to August 15.
“The rainfall scenario is likely to improve further and normal to above normal rainfall activity is very likely to confine over northwest (except Uttar Pradesh), central and east India in the week thereafter (August 16-22),” IMD said.
Equity analysts have been betting big on India’s consumption story and they may have a few surprises in store if the rainfall does not catch up in the deficient areas like Saurashtra in Gujarat and in the North-east.
According to Care Ratings, “The drop in acreage of cotton is a serious concern, as it comes at a time when the global demand for cotton is at its record high. The area sown for cotton stands at 50.6 lakh hectares, a decline of 4 per cent this season, as compared with 2017. In the aftermath of a rough monsoon in Gujarat and Saurashtra earlier this season, the cotton farmers in the region have been worried about the low yield, deficient rainfall in the region and also, about the cotton plants getting worm infested.”
“Cotton exporters are likely to be affected by the low yield, as the global markets are being flooded by Chinese exports,” Care Ratings added.
Jitendra Gohil, CFA, head of India equity research and Premal Kamdar, equity research analyst, Credit Suisse Wealth Management India, said, "So far the monsoon trend has been good, which along with minimum support prices (MSP) hikes bodes well for rural economy and should further improve rural consumption, in our view."
raviranjan@mydigitalfc.com