THE RAIN GODS

India Inc too invokes the rain god
Partha Sinha & Namrata Singh, TNN, Apr 22, 2011, 07.09am IST

MUMBAI: Amid a series of negative factors that have been affecting the business and market sentiment over the last few months, the Meteorological Department's forecast of a normal monsoon this year has come as a breath of fresh air for corporates and brokers alike.In case the country receives rainfall as per the Met's estimates, it could help the government tackle the inflationary situation more easily by limiting food price inflation, which in turn could moderate hikes in interest rates in the economy, analysts said.The government said on Tuesday that the June-September monsoon this year would be about 98% of the long-period (50-year) average, with an error range of +/-5%. The agriculture sector depends largely on good monsoons for its growth and is, therefore, specially beneficial to the rural economy. It also said that a more detailed forecast will be presented in June, including estimates of the regional distribution.While a normal monsoon is generally positive for the economy as a whole, this is especially favourable to FMCG, consumer goods, two wheelers and small car companies since they are pushing hard to enter the rural market. Leading FMCG players like Hindustan Unilever and Godrej Consumer Products (GCPL) will benefit when rural markets prosper. HUL derives around 40% of its turnover from rural markets."A normal monsoon is very good for the FMCG sector," said Adi Godrej, chairman, Godrej Group. "A good monsoon does lead to higher growth in FMCG offtake, especially in rural areas. GCPL's rural business salience is around 30%," he said.Agrees R S Sodhi, MD, Gujarat Cooperative Milk Marketing Federation (GCMMF), maker of 'Amul' brand of products. "We are forecasting an increase of 8-10% in milk production this year. A good monsoon would assist in achieving this target," Sodhi said.A normal monsoon also drives agricultural and dairy sectors, he added.A normal monsoon should also help in moderating agricultural inflation, said Indranil Sen Gupta, economist with DSP Merrill Lynch. "This should help douse agflation after two years of weather shocks," Sen Gupta said. "If rains are indeed normal, agflation—currently 10.7%—should cool off in the second half of 2011 and enable inflation to peak off as well. This, in turn, will allow the RBI to pause after 100 basis points of rate hikes till October," he added.In a report, Edelweiss Capital, however, warned that in the past "there have been instances of large deviations between projected and actual rainfall". But it added that international agencies have forecast that La Nina, a global weather condition that often plays havoc with the Indian monsoon, would also weaken in the Pacific equatorial region over June, the month when the rains first hit India.On the negative side, broking houses pointed out, the spatial distribution of rainfall is also important. In addition, brokers are also hoping that a repetition of 2009—when compared to a forecast of 96%, the actual rainfall was 77%—does not occur this year.