The Indian Meteorological Department in its first monsoon forecast for 2016 said, the onset of monsoon over Kerala is likely to be delayed by six days beyond its scheduled date of June 1.
Reacting to the news, market expert Ambareesh Baliga said a one-week delay in monsoon may not be so much of a negative factor for the market but the Mauritius issue could weigh more and the trend would be a range-bound market.
However, when the monsoons do hit our coasts, the market would possibly go to 8000-plus also, said Baliga.
Meanwhile, Aditi Nayar of ICRA hoped that a delayed onset of monsoon is followed by a very quick progress over the country. According to him the impact of monsoon is built in; food prices and food inflation will continue at least till we enter July.
Baliga would stick with his picks of Rallis India, Jain Irrigation, VST Tillers, Sintex Industries and Greaves Cotton.
Below is the verbatim transcript of Ambareesh Baliga & Aditi Nayar’s interview with Sonia Shenoy on CNBC-TV18.
Q: All we got from the MET department today was a date and they did mention that over the Kerala region the monsoons will set on the 7th of June versus an expectation of 1st of June earlier. How do you think the markets will react to this?
Baliga: A week doesn’t make so much of a difference, so I think the markets would anyway react positively. However, we should remember that the markets have reacted positively to this news much earlier, when they had given their first sort of expectations. So, I don’t think this news should have much of a difference. What is now weighing on the markets is more of the Mauritius issue and possibly the P-notes going ahead, so for the next two to three weeks the markets would be range bound.
However, once we have the monsoons actually hitting our coast that is the time you will have the market possibly crossing the 8,000 plus level. However, till then it should be like range bound.
Q: What is the sense you are getting? So far we have had huge heat waves across many regions. The drought hit areas of Marathwada and Latur are reeling under so much pressure. Will this delay of one week in the monsoons over Kerala matter a lot?
Nayar: When we got the first forecast from the Indian Meteorological Department (IMD) this is broadly the sense that we did get that although it is going to be above normal monsoon, the rainfall is really going to be surplus in the second half of the season and perhaps it wasn’t going to be plentiful in the first half. So, at least the fact that the onset is delayed by a week plus minus four days that does sort of corroborate what was expected earlier.
Also, the indication now that the IMD has now given that the La Nina will strengthen only in the second half of the season is also something that they had hinted at earlier. So, it is not going to necessarily be the best distribution of rainfall as of now is the sense that I am getting. It is possible that the delayed onset may be followed by a very quick progress over the country and that is really what we are hoping for that this extreme heat wave and dryness to settle very quickly.
As of now it would seem to me that in terms of food prices or food inflation, certainly in the short-term the very short-term the pain is perhaps going to continue. Only towards the end of June or once you get into July we would start seeing some easing in terms of prices perishables and items like that.
Q: On the markets itself the whole monsoon related stocks have been surging over the last fortnight or so whether it is some of these agri based companies, tractor makers like Mahindra & Mahindra, Escorts etc is this still a theme that one can continue playing and if yes what would your top ideas be just to play this whole monsoon theme?
Baliga: Monsoon theme will continue for the next couple of months because now they have moved up on expectations of a good monsoon. So, once we actually see in black and white that the monsoon is good, I think the rally in these stocks will continue. In fact I stick to my earlier recommendations for Rallis India to Jain Irrigation, to VST Tillers, Sintex Industries, Greaves Cotton and the companies like those.
Q: I just wanted your thoughts on the food prices itself. I heard you fleetingly mentioned the impact it would have but even in this month inflation ticker we did see higher food prices. If we do see the delay that the IMD is forecasting what kind of impact do you think it would have on inflation in next month’s print and on food prices what is your own expectation?
Nayar: Particularly, for the prices of perishables the trend that we have seen in April and which we have started to see in the first half of a May is possibly going to now continue for at least another month. Even if the onset comes in by the 7th in Kerala it would at least take another week I would imagine for a substantial part of the country to be covered which is what the normal date would be that by 15th of June a substantial portion of the country would be covered.
So, given that at least I would imagine that for the next one month we would continue to have this kind of a pick in prices of perishables and at least even on consumer price index (CPI) they do form a substantial portion. There are other items within the food basket that are also seeing price pressures like pulses, all season sugar and if those trends continue as well or at least if they don’t start to subside then food inflation would remain high in the interim period.
Of course, there is a little bit of a positive base effect for next month, so we may not see a further substantial hardening in the headline inflation number itself unless there is a very substantial spike in the food inflation number. So, I would expect it to remain above 5 percent somewhere in the range of 5-5.5 percent as far as the CPI number is concerned for next month.
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