Wednesday, June 3, 2015

How will the monsoons pan out?

Indian Meteorological Department (IMD) has revised its projection for the monsoons this year for the worse, stating that the probability of weak monsoons has risen to 93% from 68% earlier. The chart below indicates the prior year projections versus the actual rainfall and the projections made for the current year by the two institutions - IMD and private weather forecaster Skymet. As you can see, the jury is mixed on how the monsoons are likely to pan out this year between the two forecasters.

Data source: Business Standard, Department of Agriculture, IMD and Skymet; LPA - long period average

It, however, does seem that the markets are going with the more pessimistic view (that of IMD) considering how they have fallen over the past few days. There is no doubt that monsoons play an integral part in the Indian economy. However, basing investment decisions on such unpredictable outlooks would only lead to more errors in the process. Long term investors would do well to take advantage of market follies in such instances is what we believe.