Mr. Mitul Shah - Head of Research at Reliance Securities.
Nifty FY23 Target - 19,000; 18% Upside Potential
As per our observation of past 6-7 years, monsoon has played a key role in economic revival and demand recovery across segments over past several years in Indian economy. Entire spectrum of consumption gets booster from rural economy with incremental growth coming from rural India. Therefore, rainfall, its distribution, timing and quantum are critical factors for economy and Indian equity market. Moreover, its importance is high in current challenging situation of high food inflation and demand weakness. Complete turnaround of monsoon deficit over past 8-10 days has been supportive for markets and sentiments. From a monsoon deficit of >20% during mid of Jun'22 to current surplus of 0.3% indicates likely recovery in Kharif sowing and agri output going ahead.
Monsoon deficit of June gets Covered up in July and August mostly
The all-India rainfall in Jun'22 was 8% deficient, which is normal phenomenon as rainfall in June has been low on many occasions historically, which recovers during Jul-Sep as observed in the past. Historically, rainfall deficit of over 5% in June month is observed in 9/22 years (41%) but it recovered in 5 occasions out of 9 times during July-Sep and ended with full season deficit on 4 instances. There was 11.8% rainfall deficit in Jun'05 but ended the season (Jun-Sep) normal at 0.4% of Long-Period-Average (LPA). Similarly, in 2010 the deficit was 14.5% initially, while it recovered completely and ended with 5% surplus. In 2012, the initial deficit was 26.9% and recovered to only 3.6% deficit.
IMD Forecast and Actual Rainfall: At the beginning of Jun'22, the IMD (India Meteorological Department) raised forecast for 2022 southwest monsoon to 103% of LPA from 99% predicted in Apr'22. On the other hand, La Niña conditions are expected to prevail during the entire stretch of the four-months' monsoon season. The positive monsoon forecast is slowly playing out now and it would likely to have positive impact on the retail inflation which was at eight year high in Apr'22 at 7.8% and 7.04% in May'22. The average seasonal rainfall for the country as whole from 1971 to 2010 is 869 mm. This would be the 4th consecutive year of normal/above normal southwest monsoon for India, which is not seen in the recent past.