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Rainfall likely to be ‘normal’ in 2011. The Indian Meteorological Department (IMD)
announced its forecast for the June-September monsoon at around 98% of Long
Period Average (LPA). This qualifies as a normal south-west monsoon which augurs well
for the monsoon crop and subsequently for the winter crops as the reservoir levels will
also be sufficient. We note that for 2010 also the forecast was for 98% of LPA though
the monsoons exceeded their normal duration, leading to crop damage.
Monsoon to be around 98% of LPA; timing of the onset to be declared in forecast update
The IMD forecasted the South West monsoon to be around 98% of LPA with a model error of (+/-
)5%. The LPA for the period of 1951-2000 is 89 cm. This forecast puts this year’s monsoon as
normal. According to the forecasting model, the IMD sees a 53% chance of normal monsoon
along with a 30% chance of below-normal monsoon. It must be noted that besides the aggregate
rainfall, the temporal and spatial distribution is also important. According to the press releases,
North-West and North East regions are likely to experience deficit rainfall. A better picture of the
timing of the monsoons will be available in the 2nd update in June as the April and May weather
conditions will play an important role. Comments in the press conference point to likely onset of
monsoon in Kerala on June 1.
La Nina conditions will prove helpful; may see weak negative in Indian Ocean in second half
With the El Nino effects weakening in May 2010, the continuing La Nina conditions are likely to
prove beneficial for the Indian monsoons (see Exhibit 1). These conditions are likely to weaken to
reach neutrality in June 2011. The IMD also expects to see some negative developments in the
Indian Ocean region in the second half of the year. Usually, the ENSO conditions (El Nino and La
Nina) along with developments in the Indian Ocean significantly affect the Indian monsoons but
the weak negative conditions likely in the second half might not have any pronounced effects.
We expect agriculture sector to grow at 3.5% in FY2012E; inflation unlikely to see much downside
Based on the assumptions of a normal monsoon, we continue to expect agriculture production in
FY2012E to be strong although due to base effects the growth rate might not be very high. We
estimate the agriculture sector to grow by around 3.5% compared to 6% in FY2011E. We note
that for 2010 too, IMD had forecasted normal rainfall though the longer-than-expected duration
of the monsoon led to crop damage in certain parts of the country which in turn fuelled inflation.
We also note that in 2009 the IMD had forecasted a normal monsoon but actual rainfall was much
lower than normal leading to a drought (see Exhibit 2). For FY2012E we do not expect much
downside in inflation coming from the effects of a good monsoon. As recent data suggests,
protein-rich items coupled with non-food manufactured items have started to show an upward
bias leading to inflation remaining high and sticky. We expect end-FY2012E inflation to be around
6.5-6.75% with the upward pressures from crude prices and global commodity prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Economy
Rainfall likely to be ‘normal’ in 2011. The Indian Meteorological Department (IMD)
announced its forecast for the June-September monsoon at around 98% of Long
Period Average (LPA). This qualifies as a normal south-west monsoon which augurs well
for the monsoon crop and subsequently for the winter crops as the reservoir levels will
also be sufficient. We note that for 2010 also the forecast was for 98% of LPA though
the monsoons exceeded their normal duration, leading to crop damage.
Monsoon to be around 98% of LPA; timing of the onset to be declared in forecast update
The IMD forecasted the South West monsoon to be around 98% of LPA with a model error of (+/-
)5%. The LPA for the period of 1951-2000 is 89 cm. This forecast puts this year’s monsoon as
normal. According to the forecasting model, the IMD sees a 53% chance of normal monsoon
along with a 30% chance of below-normal monsoon. It must be noted that besides the aggregate
rainfall, the temporal and spatial distribution is also important. According to the press releases,
North-West and North East regions are likely to experience deficit rainfall. A better picture of the
timing of the monsoons will be available in the 2nd update in June as the April and May weather
conditions will play an important role. Comments in the press conference point to likely onset of
monsoon in Kerala on June 1.
La Nina conditions will prove helpful; may see weak negative in Indian Ocean in second half
With the El Nino effects weakening in May 2010, the continuing La Nina conditions are likely to
prove beneficial for the Indian monsoons (see Exhibit 1). These conditions are likely to weaken to
reach neutrality in June 2011. The IMD also expects to see some negative developments in the
Indian Ocean region in the second half of the year. Usually, the ENSO conditions (El Nino and La
Nina) along with developments in the Indian Ocean significantly affect the Indian monsoons but
the weak negative conditions likely in the second half might not have any pronounced effects.
We expect agriculture sector to grow at 3.5% in FY2012E; inflation unlikely to see much downside
Based on the assumptions of a normal monsoon, we continue to expect agriculture production in
FY2012E to be strong although due to base effects the growth rate might not be very high. We
estimate the agriculture sector to grow by around 3.5% compared to 6% in FY2011E. We note
that for 2010 too, IMD had forecasted normal rainfall though the longer-than-expected duration
of the monsoon led to crop damage in certain parts of the country which in turn fuelled inflation.
We also note that in 2009 the IMD had forecasted a normal monsoon but actual rainfall was much
lower than normal leading to a drought (see Exhibit 2). For FY2012E we do not expect much
downside in inflation coming from the effects of a good monsoon. As recent data suggests,
protein-rich items coupled with non-food manufactured items have started to show an upward
bias leading to inflation remaining high and sticky. We expect end-FY2012E inflation to be around
6.5-6.75% with the upward pressures from crude prices and global commodity prices.
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