El Nino, a phenomenon in which the ocean surface warms and results in lower rainfall, is considered a significant threat to India’s stock market. The country heavily relies on agriculture and the rural economy, which are both adversely affected by weak monsoons. Despite these worries, historical data shows that local equities have mostly risen over three-to-six-month periods following the El Nino effect. India has experienced the El Nino phenomenon six times in the last two decades: in 2002, 2004, 2006, 2009, 2014, and 2015. The Nifty – India’s benchmark stock exchange index – declined in two of the six occasions over a three-month period, and once over a six-month period. However, the average three-month and six-month Nifty returns over these periods had been 5.29% and 12.1%, respectively. Meanwhile, one-year return rates had been 22.82%, according to Samco Securities data.
Export-oriented industries like information technology (IT) and pharma would be a wise investment if the monsoon season does not go well, according to Apurva Sheth, head of research at Samco Securities. However, analysts warned that consumer-centric and agriculture-centric industries such as fast-moving consumer goods (FMCG), agro-industries, and other consumer goods and services companies could suffer as a result of reduced rainfall.
The full effect of El Nino depends on its strength: high, moderate, or weak. Over the last four decades, El Nino occurred twelve times in India. The country had received normal or above-normal rainfall in five of these instances, resulting in a 58% chance of below-average rainfall. For 2023, the India Meteorological Department (IMD) has predicted normal monsoons, and they having limited the monsoon band to a low of 96% in anticipation of positive Indian Ocean Dipole (IOD) conditions in the Indian Ocean.
