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Reap with the rains to harvest better returns

business Updated: Jun 27, 2008 20:03 IST
Reap with the rains to harvest better returns

Looking at the monsoon to determine the overall position of the economy is what an investor should do. There are many factors that will be impacted by the way in which the monsoon progresses and this is why it should be closely watched in the present scenario.

While investments in equity will be impacted by the progress of the monsoon, the household budget also depends on it, as bad monsoon will make inflation shoot up.

Output and inflation
An early start to the monsoon, as witnessed this year, will mean that the entire monsoon activity will start early. This will result in the sowing taking place early and also increases chances of a good harvest. The result will be lower inflation due to good farm output and abundance of food grain supply.

A good harvest also translates into good demand for several products. The spillover impact will also be felt because several sections or areas that depend upon the farm sector will be positively impacted.

What is more important is that the rainfall should be spread across the season. This will ensure that the early projections will be achieved leading to a good output. It is no use having heavy rainfall in the early part of the season. Such sharp breaks in rainfall impact the crop.

This is a reality and all the records can be worthless because the final output is what matters. This requires moderation and not record rainfall but more importantly it is required to spread across the season. This is closely watched by investors as well as economists to make their projections.

Short-term pain
Overall, it might look as if things are going well because the monsoon is heavy and there is enough rainfall to provide drinking water. At the same time there are some temporary impacts that might be felt. These could be short-term problems because inflation might actually rise for the consumer, instead of falling.

There are times when rains cause disruption especially with respect to vegetables and fruits and the immediate effect is that the price of these items jump sharply.

At a later stage the prices might dip, but it can put additional pressure on the budget of the individual in the short-term.