{"id":38409,"date":"2025-09-04T11:14:28","date_gmt":"2025-09-04T05:44:28","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=38409"},"modified":"2025-09-03T18:25:29","modified_gmt":"2025-09-03T12:55:29","slug":"how-rains-affect-your-investments","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/how-rains-affect-your-investments\/","title":{"rendered":"How Rains Affect Your Investments"},"content":{"rendered":"

“How did you go bankrupt?” “Two ways. Gradually, then suddenly!”<\/span><\/i> – Ernest Hemingway.<\/span><\/p><\/blockquote>\n

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This captures the essence of unexpected market movements, and nowhere is this more relevant than in understanding how rains affect investment portfolios.<\/span><\/p>\n

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\"SIP_Kuvera\"<\/b><\/h4>\n

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Every year, as dark clouds gather over Kerala in early June, millions of investors across India hold their breath. Will the monsoon be kind this year? Will it affect crops? Will it increase rural incomes and lift FMCG stocks? Or will excessive rains flood supply chains and hamper the festival demand? The relationship between raindrops and the financial market is more complex than one might realise.<\/span><\/p>\n

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The Monsoon Paradox<\/b><\/h2>\n

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Here’s a counterintuitive fact that might surprise you. From 2013-2023, actual rainfall was “Below Normal,” yet the Nifty delivered positive returns in 7 of these 8 instances, with double-digit returns in 2 cases. Meanwhile, in the 3 years when rainfall was “Above Normal”, the Nifty delivered negative returns in 2 of them.<\/span><\/p>\n

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This data nullifies the conventional wisdom that good rains automatically translate to market gains. As Jack Bogle once said about indexing,\u00a0<\/span><\/p>\n

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“If the data do not prove that indexing wins, well, the data are wrong.”<\/span><\/i><\/p><\/blockquote>\n

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Meaning that sometimes when the data don’t prove popular theories, the theories need revisiting. The disconnect exists because of India’s emerging markets. Agriculture’s contribution to GDP has fallen from 25% to 18% in recent years, according to the Economic Survey FY2023-24. Most Nifty 50 companies are not pure agriculture businesses. They are diversified conglomerates or service companies whose performance depends on factors far beyond rainfall patterns.<\/span><\/p>\n

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When Too Much of a Good Thing Becomes Bad<\/b><\/h2>\n

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The 2024-25 monsoon season offers a perfect case study in unintended consequences. Extreme rains in the northern, southern, and western parts of the country are beginning to concern industry partners. Lower temperatures have reduced electricity demand, hitting appliance manufacturers during their peak season. Paint companies are unhappy because Diwali arrives early this year on October 21, versus November 1 last year, reducing painting days before the festive season.<\/span><\/p>\n

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Food Inflation<\/b><\/h2>\n

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Crop damage has caused vegetable prices to increase significantly. Mustard oil prices have risen nearly 30% in three months, while tomato prices jumped as much as 50% in just two to four weeks. Coconut oil prices have increased from \u20b9160-170 per litre a year ago to \u20b9480-490 in coastal Konkan areas.<\/span><\/p>\n

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Prices of staples, including edible oils, rice, various flours and vegetables have risen sharply. A sharp rupee depreciation (from \u20b985.90 per US dollar on 15th July 2025 to \u20b987.82 on 5th August 2025) has lifted imported edible oil prices even further.<\/span><\/p>\n

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Saugata Gupta, CEO of Marico, describes the situation as “unprecedented levels of inflation,” suggesting a supply-demand gap created by a 9% drop in coconut productivity due to uneven weather patterns.<\/span><\/p>\n

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But here’s the paradox. All in all, food inflation remains contained, having peaked in 2022. India’s food prices were actually in deflation at -1.06% year-on-year in June due to lower prices of vegetables, pulses, meat and fish. The current increase in specific commodities is expected to be temporary. This might change when new crops arrive.<\/span><\/p>\n

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Sectoral Rain Impact<\/b><\/h2>\n

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While broad indices may not correlate with monsoons, specific sectors tell different stories. Historically, FMCG companies are positively impacted by strong monsoons. Good harvests mean higher rural disposable income. This lifts sales of mass-market products. Robin Arya of GoalFI projects a 10-15% earnings growth jump in the second half of FY2026 for agriculture-linked sectors if the 2025 monsoon stays above normal.<\/span><\/p>\n

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Two-wheeler and entry-level car manufacturers benefit similarly. Rural-focused lenders and Non-Banking Financial Companies (NBFCs) see better loan repayments and increased credit demand during an above-average monsoon season.<\/span><\/p>\n

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Meanwhile, construction and cement companies suffer during excessive rains. Cement prices in South India have already fallen by \u20b910-20 per bag due to construction disruptions, potentially impacting margins for companies like Ramco, Dalmia Bharat, and UltraTech Cement.<\/span><\/p>\n

Cooling appliance manufacturers face a different challenge. Strong monsoons mostly mean cooler summers. This, in turn, reduces demand for air conditioners and fans. In 2025, an unusually cool and rainy May caused a 4.3% year-on-year decline in electricity demand.<\/span><\/p>\n

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Government Policies<\/b><\/h2>\n

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Monsoons also matter significantly through their impact on monetary policy. Ample rainfall keeps food prices in check, creating room for RBI rate cuts that stimulate the broader economy of India. The RBI surprised markets with rate cuts in June, and stable inflation opens doors for more.<\/span><\/p>\n

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As Naveen KR of Windmill Capital says,<\/span><\/p>\n

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\u201cAbove-normal rainfall raises optimism that inflation will remain contained, potentially giving the Reserve Bank of India further room to ease interest rates.”<\/span><\/i><\/p><\/blockquote>\n

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This creates a virtuous cycle: Lower rates support equity valuations, which in turn boost consumption, making rural credit less stressful and benefiting agriculture-dependent sectors.<\/span><\/p>\n

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The Bigger Picture<\/b><\/h2>\n

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Despite monsoon uncertainties, India’s economic fundamentals remain intact. The GDP growth in the fourth quarter of FY2025 was 7.4% year-on-year. Reasons include rebounding rural consumption. Personal consumption grew by 7.2% in FY2025, up from 5.6% in FY2024. Consumer price inflation reached just 2.82% in May 2025, the lowest level in over six years.<\/span><\/p>\n

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Karthick Jonagadla of Quantace Research sums it up by saying that,<\/span><\/p>\n

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“A record May GST haul and forecasts of an above-normal monsoon both feed rural demand and bolster urban discretionary spending, keeping top-line momentum intact even if global growth wobbles.”<\/span><\/i><\/p><\/blockquote>\n

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Does The Rain Actually Affect Your Investments?<\/b><\/h2>\n

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Monsoons offer a unique lens for understanding India’s economic cycles, but they’re neither a sure-shot parameter for market gains nor a guaranteed disaster when there are excessive rains.<\/span><\/p>\n

Investors should consider all rural consumption trends, food inflation patterns, and RBI policy signals, rather than relying solely on rainfall statistics. You can watch for sector rotation opportunities, from construction and appliances during heavy rains toward FMCG and rural-focused stocks when conditions normalise.<\/span><\/p>\n

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\"FD_Kuvera\"<\/h4>\n

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Wrapping Up<\/b><\/h2>\n

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Most importantly, remember that monsoons are seasonal events. The monsoon-market relationship requires understanding the mechanism rather than chasing correlations. After all, correlation is not causation. No matter what level you are in your investment journey, never let weather forecasts drive your investment decisions.<\/span><\/p>\n

After all, in investing and in meteorology, predicting the future based on current conditions is an art filled with uncertainty. A wise investor would always prepare for various scenarios rather than betting everything on any single forecast.<\/span><\/p>\n

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Interested in how we think about the markets?<\/strong><\/p>\n

Read more:\u00a0Zen And The Art Of Investing<\/a><\/p>\n

Watch here:\u00a0<\/strong>Investing in Passive Funds<\/p>\n

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