Economy: IMD forecast: Expect a normal monsoon - Kotak

IMD forecast: Expect a normal monsoon. The IMD increased its overall forecast marginally for the 2017 southwest monsoon to 98% of the LPA from its earlier release of 96% of LPA. The forecast of a normal monsoon remains unchanged. In addition, its release on the spatial and temporal distribution forecasts bodes well for major crops. This should be positive for production volumes and rural incomes. We will watch for the sowing pattern along with the July and August rainfall.

IMD tweaks monsoon forecasts, up a notch but normal yet

The updated IMD forecast pegs monsoons precipitation at 98% of LPA with a model error of (+/-)4%; against its earlier estimate of 96% released in April. The IMD estimates 50% probability of normal rainfall and 28% probability of below normal rainfall. Skymet forecasts 50% probability of normal rainfall and 25% probability of below normal rainfall with its overall monsoon forecast at below normal at 95% of LPA. The IMD assigns a slightly lower probability of deficient rainfall at 7% against Skymet's forecast of 15%. The IMD expects the current neutral El Nino conditions through the monsoon season.

Spatial and temporal distribution forecasts seem satisfactory

The IMD expects the peak of the sowing season (July and August) to experience normal rainfall with July rainfall at 96% of LPA and August rainfall at 99% of LPA (with model error of (+/-)9%). The spatial distribution forecasts are satisfactory with north-west India (key states: Haryana, Punjab, Rajasthan and Uttar Pradesh) rainfall at 96% of LPA, north-east India (Assam, Bihar, Jharkhand and West Bengal) at 96% of LPA, Central India (Gujarat, Madhya Pradesh and Maharashtra) at 100% of LPA, and southern peninsula (Andhra Pradesh, Karnataka, Kerala and Tamil Nadu) at 99% of LPA.

Rainfall in central India and north-west India key for cereals, pulses and oilseeds

Central India accounts for the bulk of pulses and oilseeds production in India. With an estimated 100% of LPA rainfall in central India, it should be positive for pulses and oilseeds production. north-west and north-east India are predominantly paddy producers. With 96% of LPA rainfall in both areas, paddy production will need to be closely watched.

Maintain our growth and inflation estimates for FY2018

In our GDP report on May 31, 2017 (Limited impetus to FY2018 growth), we had highlighted that FY2018 GVA growth will likely remain tepid with only marginal improvement to 6.8% from 6.6% in FY2017. FY2018 agriculture GVA growth at 3.8% is likely to be lower than FY2017 which saw record production of key crops. In the absence of the private investment cycle and lower government expenditure (compared to FY2017) growth prospects remain weak. However, improving rural demand from better wage dynamics and good monsoons should provide some support to growth. The upside risks to food inflation are likely to remain muted in FY2018 if the monsoons (and consequently crop production) remain favorable and government continues to be vigilant on any sharp price increases. Further, benign commodity prices and relatively strong INR further make a strong case for inflation being under check. We maintain our CPI inflation estimates at 4.5% in March 2018 with 1HFY18 average at 3.1% and 2HFY18 average at 4.4%.

Source : Equity Bulls

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