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Monsoon update
The latest Met. Dept release places the monsoon rainfall to date at 4%
below normal. Hardly alarming, but the IMD’s 2H forecast (73%
probability of below normal/deficient rainfall during Aug-Sep) and data
on sowing activity (3% below 2010) dampen prospects for any positive
surprise on foodgrain production. With food inflation running at near
10%, slippage on output will curb the market’s current optimism on an
early peak for inflation. Stocks of interest rate sensitives and consumers
are relatively more vulnerable if this scenario were to play out.
Monsoons running 4% below normal
All India weighted rainfall as of August 10, 2011 has been has been 522.1mm,
which is 4% below the long period average.
Gujarat, Vidharbha and Orissa are the areas which have received rainfalls 20-37%
below its long period average.
Prognosis for 2H more muted
IMD has forecast that rainfall during the second half of 2011 South-west Monsoons
(Aug-Sep 11) will likely be below normal.
They have assigned 73% probability to rains being below normal or deficient in 2H.
The Aug-Sep period, which on average accounts for c.48% of overall rainfall, is the
period when sowing activity picks-up and is thus important for farm output.
On a positive note, the probability of formation of El Nino conditions, where Asian
countries including India receive deficient rainfall, remains low.
The jury is not out yet…
For now, the Met department’s retains its view that the 2011 monsoon rainfall will
be within 90-96% of the long-period average.
The real impact on food grain production will come from the temporal and
geographical distribution of rainfall during the rest of the season.
The break-down of India’s cultivated land is; (1) 20% well irrigated, (2) 7.3% of
land is adequately rain-fed areas and (3) 72.3% of land is rainfall dependent.
Analysis of temporal distribution of rainfall for the season suggests that the
proportion of rain-dependent areas where rainfall is deficient is a manageable 18%
Sowing activity for food grains is running 3% below 2010, with slippages in sowing
for Jowar, Bajra, cereals and pulses; rice has seen 5% (1m hectare) higher sowing
relative to this point in 2010
… but positive surprises in crop output can be ruled out
The less-than-optimistic outlook for the monsoon rainfall and the sluggish trend in
sowing activity suggest that upside risk to crop output is very unlikely.
In the five years (FY96, FY00, FY01 and FY02) where the rainfall was 4-9% lower
than normal, average agri. GDP growth was 1.4% - versus 3% assumed for FY12.
While buffer stocks of foodgrains at record highs (65.6mmt) offer some cushion,
distribution remains an issue, with states slow to pick-up stocks.
Will food inflation play spoiler?
The recent global events have led to concerns on inflation abating, as the cost push
from global commodities eases.
Food inflation has once again moved up to 9.9%YoY and any accidents during the
rest of the monsoon season (deficient rainfall/floods in rain dependent areas) will
push up inflation to uncomfortable levels.
Interest rate sensitives like banks and autos will be most vulnerable to sticky
inflation, since monetary policy will remain tight for longer, but a significant loss in
crop output will also hurt consumer stocks due to the impact on farm incomes.
We remain U-WT on Banks in our Model Portfolio; consumer stocks most vulnerable
to rural incomes being adversely impact are Colgate, Dabur and HUL, where
valuation support is lacking. Hero Honda and Maruti among Autos.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Monsoon update
The latest Met. Dept release places the monsoon rainfall to date at 4%
below normal. Hardly alarming, but the IMD’s 2H forecast (73%
probability of below normal/deficient rainfall during Aug-Sep) and data
on sowing activity (3% below 2010) dampen prospects for any positive
surprise on foodgrain production. With food inflation running at near
10%, slippage on output will curb the market’s current optimism on an
early peak for inflation. Stocks of interest rate sensitives and consumers
are relatively more vulnerable if this scenario were to play out.
Monsoons running 4% below normal
All India weighted rainfall as of August 10, 2011 has been has been 522.1mm,
which is 4% below the long period average.
Gujarat, Vidharbha and Orissa are the areas which have received rainfalls 20-37%
below its long period average.
Prognosis for 2H more muted
IMD has forecast that rainfall during the second half of 2011 South-west Monsoons
(Aug-Sep 11) will likely be below normal.
They have assigned 73% probability to rains being below normal or deficient in 2H.
The Aug-Sep period, which on average accounts for c.48% of overall rainfall, is the
period when sowing activity picks-up and is thus important for farm output.
On a positive note, the probability of formation of El Nino conditions, where Asian
countries including India receive deficient rainfall, remains low.
The jury is not out yet…
For now, the Met department’s retains its view that the 2011 monsoon rainfall will
be within 90-96% of the long-period average.
The real impact on food grain production will come from the temporal and
geographical distribution of rainfall during the rest of the season.
The break-down of India’s cultivated land is; (1) 20% well irrigated, (2) 7.3% of
land is adequately rain-fed areas and (3) 72.3% of land is rainfall dependent.
Analysis of temporal distribution of rainfall for the season suggests that the
proportion of rain-dependent areas where rainfall is deficient is a manageable 18%
Sowing activity for food grains is running 3% below 2010, with slippages in sowing
for Jowar, Bajra, cereals and pulses; rice has seen 5% (1m hectare) higher sowing
relative to this point in 2010
… but positive surprises in crop output can be ruled out
The less-than-optimistic outlook for the monsoon rainfall and the sluggish trend in
sowing activity suggest that upside risk to crop output is very unlikely.
In the five years (FY96, FY00, FY01 and FY02) where the rainfall was 4-9% lower
than normal, average agri. GDP growth was 1.4% - versus 3% assumed for FY12.
While buffer stocks of foodgrains at record highs (65.6mmt) offer some cushion,
distribution remains an issue, with states slow to pick-up stocks.
Will food inflation play spoiler?
The recent global events have led to concerns on inflation abating, as the cost push
from global commodities eases.
Food inflation has once again moved up to 9.9%YoY and any accidents during the
rest of the monsoon season (deficient rainfall/floods in rain dependent areas) will
push up inflation to uncomfortable levels.
Interest rate sensitives like banks and autos will be most vulnerable to sticky
inflation, since monetary policy will remain tight for longer, but a significant loss in
crop output will also hurt consumer stocks due to the impact on farm incomes.
We remain U-WT on Banks in our Model Portfolio; consumer stocks most vulnerable
to rural incomes being adversely impact are Colgate, Dabur and HUL, where
valuation support is lacking. Hero Honda and Maruti among Autos.
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