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Top Reasons Why Monsoon is the Best Time to Invest in Indian Stock Markets


By Nidhi Mahajan

Oct 27, 2020: Is monsoon the best time for making investments in the Indian stock market? You should bear in mind that the economy of the country is still driven hugely by agrarian enterprises, indicating that primary earnings sources for a vast majority of the population of India are derived from agriculture. The agricultural sector also depends considerably on the weather conditions and most importantly, the monsoon season. The secondary sector comprising industries requires a major chunk of their raw materials from farms and the agricultural sector which is imperative for its overall sustenance as well. This is a key reason behind the Government of India allocating a sizable amount of overall cash flow for the benefit of the country’s farmers and for making sure that they keep flourishing.

Their prosperity will naturally influence the Indian economy positively. The agricultural systems in the country are considerably dependent on the monsoons and overall rainfall volumes as to the primary irrigation source. The patterns of cropping are rotated likewise on the basis of the monsoons. The tropical location of India makes sure that it has sufficient rain for at least 4 months every year. Any deficit in rainfall or excessive rainfall naturally impacts the economy greatly. The 2020 prediction is normal thus far and this has boosted market sentiments across industries depending on this season including food and beverages, fertilizers, FMCG and so on for instance. If as an individual investor, you are planning to invest in Indian stock market during the monsoons and cash in on positive business cycles in various sectors, you may consider investing sometime around the start of June as per experts.

Key reasons to invest in Indian stock markets during monsoon

There are various reasons why stock market investments should be made during the monsoons. Here are the top ones that you should certainly consider.

Enhanced consumer product demand- Monsoons are clear indicators of increased demand for household items in both rural and urban areas. It has always been observed that during monsoons, people usually spend higher amounts, particularly in rural zones where the season implies the earnings season as well. This helps greatly in enabling companies to sell household products in higher volumes while creating enhanced demand as well. Stocks of entities working in the FMCG space naturally perform better in such a scenario.

Exposure is not very high for overall risks- Whenever you are investing capital based on a particular theme for the long haul, risks linked to the investment will naturally be diversified greatly, making these investments suitable for those who are not looking at bearing higher stock market risks. In most cases, short term investments and intraday trading come with the highest risks which go down automatically when you purchase quality stocks for longer durations.

Chemical companies and fertilizer sectors benefit- Every year during monsoons, rodents, lizards, insects and other pests also become menaces for farms, crops and homes alike. Chemical products are required for households while farmers require insecticides, fertilizers and pesticides for keeping their crops safe from pests and flourishing throughout the season. The impact is hugely positive for chemical and fertilizer companies and they usually witness higher sales throughout the monsoons.

Proper analysis is always beneficial- Whenever an investor attempts to cash in on the beneficial effect of the monsoon on the Indian stock markets, there is sizable fundamental analysis and homework that goes into it since this is a theme-based investment. Proper analysis of companies and sectors that benefit from a good monsoon should help greatly in lowering risks along with analyzing performance patterns over the years as well. Availability of sufficient insights and material by way of research reports is greatly beneficial for investors in this case.

Timing is of the essence in the stock market and if you are planning to deploy capital in order to profit from the monsoons, you should consider investing right from the beginning of the month of June. This will help you benefit from a positive rally in stock prices accordingly. You should keep in mind that stock market investments will always be subject to prevailing risks in the market and individuals should only invest on the basis of their risk appetite and present financial position. Fertilizers will benefit, particularly companies that manufacture these vital farm items while FMCG sectors will naturally benefit from enhanced demand. As per reports, 2009-10 was a poor rainfall period, coming in at 22% lower than the usual national average. In 2007-08, this was 6% higher than the average while the remainder of the year saw this at 1-2% higher/lower than the national average in the long term.

In this period, poor rainfall in 2009-10 impacted sales of HUL (Hindustan Unilever) which came down by a whopping 13%. In the 2007-08 period, higher rainfall enabled sales to grow by 17.6% for HUL (Hindustan Unilever Share) likewise. Normal rainfall volumes helped the company increase sales by a handsome 12.1% for the 2011-12 period. This is an example that you should always keep in mind. The automobile sector may also benefit from a good monsoon, particularly in terms of rural demand covering SUVs, tractors and commercial vehicles. Consult professionals and then invest at the beginning of the monsoon, after having selected suitable business sectors and companies to invest in. A little homework is always par for the course while making stock market investments.  

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