It may rain profits this monsoon

The forecast of a good monsoon this year came as a welcome relief for the market battered by bad numbers during the past week. Almost all numbers that came out last week — IIP, inflation and Infosys — were negative, pulling down the Bombay Stock Exchange Sensitive Index, or Sensex, by over 600 points in two sessions.

But on Tuesday, the Indian Meteorological Department (IMD) came to the rescue, saying it expected a normal monsoon this year. Sarabjit Kour Nangra, VP (research), Angel Broking, said, “This means two consecutive years of good monsoon. It augurs well for the agriculture sector and the market will take comfort from that.” The Sensex ended a two-day losing streak with a 30-point gain ending the day at 19,121 points.

However the mood is not too bouyant, at least immediately. As a head of a brokerage firm said, “This is just the first forecast. Now, there will be more forecasts in the days and months to come. For the market, the real value of this forecast will only be seen by May-end. However, if the forecast had been bad, the markets would have reacted quite adversely.” Market players said further confirmation would be needed for stocks to react.

In its first forecast for June-September monsoon season of this year, IMD said rainfall for the country as a whole is most likely to be normal, with a very low probability of seasonal rainfall to be deficient or excess. The agency pegged rainfall at 98 per cent of the long period average. This implies southwest monsoon will be normal for the second consecutive year, after drought hit many parts of the country in 2009.

“This is one event which could have gone completely wrong. However, distribution of rainfall will be important. This will help agri-based stocks for sometime. Overall, there will be some cheer because of the impact on economy and inflation,” V K Sharma, Head Private Broking and Wealth Management, HDFC Securities said the immediate impact of the prediction will be mildly positive.

Rising food prices has been a concern for the policy makers. Another year of good monsoon could cool the prices and bring relief on the inflation front, say analysts. However, Nangra added it is too premature to have a substantial impact on the stock prices.

At present, the market has lost the momentum because of Infosys and crude oil concerns. “The fact that Saudi Arabia has decided to cut production means that a floor price of crude oil has been set at around $115-120 a barrel. This is not good news for India,” added the broking head.

Another issue that will be weighing on the market is the increased supply. That is, with Future Ventures and other companies entering the market through IPOs and FPOs, money will get diverted towards them. “We expect the market to be rangebound, as it has to absorb all these new issues,” said an independent analyst.