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Economy
Monsoon
Sowing pattern does not auger well for kharif harvest. Latest data show that
rainfall till July 30 has been 4% below LPA. In line with the weak precipitation, sowing
data till July 22 paint a dismal picture compared to last year. Most crops show lower
acreage than FY2011 despite monsoons being almost equivalent to last year’s level
when it was 6% below LPA. Reservoir and basin levels are, on the other hand, at a
decent level. We believe that the downside risks to crop output this year have increased
given the sowing pattern till end-July. IMD has also forecasted a ‘below normal’ (86-
94% of LPA) monsoon for August-September.
Rainfall falters in July; IMD forecasts ‘below normal’ for August and September
Rainfall till July 30 is 4% below LPA, though it is classifiable as ‘normal’. The last week of July was
especially disappointing with pan-India rainfall 23% below LPA. Spatial data indicate that the
North Eastern and the western regions continue to see scarce rainfall. Gujarat is the driest state
with rainfall 41% below normal. Eight sub-divisions are in the deficient/scanty zone while five subdivisions
are in the excess zone. Regions like West Bengal, Uttar Pradesh etc. continue to be in the
normal to excess regions unlike for the same period last year when they were the worst-hit. The
IMD on August 1 forecasted a rainfall of 90% of LPA with a symmetrical model error of 8%. This
implies that rainfall will continue to be weak on a pan-India basis and sowing could be impacted
even going forward.
Sowing data weaker compared to last year; July rains usually more important
Compared to last year, acreage is down for almost all the crops except for paddy, sugarcane and
soyabean. On an absolute basis, though, the acreage seems in line with the normal acreage for
kharif season. The overall weak July monsoon is likely to have an impact on the kharif output
unless the August rainfall makes up for the lower sowing till July. Empirically, July monsoon shows
a greater influence on the kharif foodgrains production. We see a correlation of 40-45% between
July rainfalls and the kharif foodgrain output. We had been looking at a cyclical slowdown in
agriculture in FY2012E compared to FY2011. Even as the downside risks to our estimate of 4% for
the agriculture sector growth open up with the poorer sowing activity, the balancing factor could
be the rabi crop that could see a good production given the reservoir and basin levels. For now,
we hold on to our 4% growth in agriculture for FY2012E.
Reservoir and basin levels remain strong
The reservoir and basin levels are important for two main reasons: (1) for the rabi crops and
(2) hydel power generation. With the levels holding on steadily, we see lesser concerns from the
rabi crop output as of now. Key river basins like the Ganga and Godavari are running at a surplus
of over 40%. Data from the 81 large reservoirs show that currently around 44% of the capacity is
filled. In relation to the past 10-year average, reservoirs are at a surplus of 40% as of July 28.
Sentiments could weaken significantly
The importance of monsoon-related data has assumed great significance now with the IMD
projecting a lower-than-normal rainfall for August and September. A lower rainfall scenario for
this year could be a significant sentiment dampener as India appears to be at the cusp of a
slowdown, mainly driven by the interest sensitive sectors as of now. The hawkish tone of the RBI
recently has hinged on the relatively steady consumption dynamics. In the event of a downside risk
to agriculture, the consumption dynamics could also tend to become unhinged. Choices for the
RBI could get even more complicated in this atmosphere as inflation could tend to be stickier while
growth underperformance could be more than expected levels.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Economy
Monsoon
Sowing pattern does not auger well for kharif harvest. Latest data show that
rainfall till July 30 has been 4% below LPA. In line with the weak precipitation, sowing
data till July 22 paint a dismal picture compared to last year. Most crops show lower
acreage than FY2011 despite monsoons being almost equivalent to last year’s level
when it was 6% below LPA. Reservoir and basin levels are, on the other hand, at a
decent level. We believe that the downside risks to crop output this year have increased
given the sowing pattern till end-July. IMD has also forecasted a ‘below normal’ (86-
94% of LPA) monsoon for August-September.
Rainfall falters in July; IMD forecasts ‘below normal’ for August and September
Rainfall till July 30 is 4% below LPA, though it is classifiable as ‘normal’. The last week of July was
especially disappointing with pan-India rainfall 23% below LPA. Spatial data indicate that the
North Eastern and the western regions continue to see scarce rainfall. Gujarat is the driest state
with rainfall 41% below normal. Eight sub-divisions are in the deficient/scanty zone while five subdivisions
are in the excess zone. Regions like West Bengal, Uttar Pradesh etc. continue to be in the
normal to excess regions unlike for the same period last year when they were the worst-hit. The
IMD on August 1 forecasted a rainfall of 90% of LPA with a symmetrical model error of 8%. This
implies that rainfall will continue to be weak on a pan-India basis and sowing could be impacted
even going forward.
Sowing data weaker compared to last year; July rains usually more important
Compared to last year, acreage is down for almost all the crops except for paddy, sugarcane and
soyabean. On an absolute basis, though, the acreage seems in line with the normal acreage for
kharif season. The overall weak July monsoon is likely to have an impact on the kharif output
unless the August rainfall makes up for the lower sowing till July. Empirically, July monsoon shows
a greater influence on the kharif foodgrains production. We see a correlation of 40-45% between
July rainfalls and the kharif foodgrain output. We had been looking at a cyclical slowdown in
agriculture in FY2012E compared to FY2011. Even as the downside risks to our estimate of 4% for
the agriculture sector growth open up with the poorer sowing activity, the balancing factor could
be the rabi crop that could see a good production given the reservoir and basin levels. For now,
we hold on to our 4% growth in agriculture for FY2012E.
Reservoir and basin levels remain strong
The reservoir and basin levels are important for two main reasons: (1) for the rabi crops and
(2) hydel power generation. With the levels holding on steadily, we see lesser concerns from the
rabi crop output as of now. Key river basins like the Ganga and Godavari are running at a surplus
of over 40%. Data from the 81 large reservoirs show that currently around 44% of the capacity is
filled. In relation to the past 10-year average, reservoirs are at a surplus of 40% as of July 28.
Sentiments could weaken significantly
The importance of monsoon-related data has assumed great significance now with the IMD
projecting a lower-than-normal rainfall for August and September. A lower rainfall scenario for
this year could be a significant sentiment dampener as India appears to be at the cusp of a
slowdown, mainly driven by the interest sensitive sectors as of now. The hawkish tone of the RBI
recently has hinged on the relatively steady consumption dynamics. In the event of a downside risk
to agriculture, the consumption dynamics could also tend to become unhinged. Choices for the
RBI could get even more complicated in this atmosphere as inflation could tend to be stickier while
growth underperformance could be more than expected levels.
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