MARKETS FAITH ON IMD - REFLECTION OF "BEARISH" MOODS?

By Research Desk
about 5 years ago

By Ruma Dubey

The market is worried. Because there is no good news trigger it has decided to ruminate of that which is not good. And the “not good’ factor this time is the Indian Meteorological Department (IMD).

The IMD lowered forecast to 88% of the long-term average, stoking fears of a drought and a possible spike in inflation. The Govt owned weather bureau said that North-west India, comprising major grain producing states such as Punjab, Haryana, Rajasthan and Uttar Pradesh, the south-west monsoon this year was expected to be at only 85% of long period average (LPA).

At the same time, private sector monsoon “predictor” Skymet predicted that rainfall would be normal at 102%. To put this in the right perspective -rainfall less than 90% is considered a drought while that of more than 110% is excess.

Two predictions of the very same country and of the very same monsoon but such a huge difference – one, the Govt agency is predicting drought and the other, private sector is assuring us of normal rains. But the market, probably taken over by bearish sentiments has decided to go with IMD and ignore Skymet. We joke - if the IMD says sunny day, it is sure to rain; so cancel the picnic! And now, we give more weightage to the very same IMD?

This is the irony – under normal circumstances, if moods had been good, we would have gone with Skymet but today because pessimism rules, we have chosen to go with IMD.  In our day-to-day life we do not choose Air India or Indian Post but here, we choose to go with IMD. And that is where the mystery lays. Why IMD when out of its 21 predictions in recent times, 15 have gone wrong and only 6 have been right. So 71% predictions have been wrong and yet, we want to believe the IMD this time.

In 2014, IMD had said India would have slightly weak monsoon – we got a drought.

In 2013, IMD had said that we would have below-average rains and we got, not surprisingly, much above average rainfall.

Worst of all, in 2009, IMD had said that India would have normal monsoon but we had probably the worst drought in decades.

On the other hand, Skymet started giving out its monsoon predictions since 2012. In 2012, it predicted 94% rains and it came in at 93%; in 2013 it predicted 103% and actual came in at 106%; in 2014 the prediction was a bit way off the mark – it predicted 94% and actual came in at 88%.

So compared to IMD, to that extent Skymet has almost always managed to steal the thunder from IMD. Skymet maintains that this year, the El Nino which all are talking about is a residue of last year and it thus expects it to start tapering out by July, which is actually when monsoon picks.

Well, quirk of fate and suppose IMD, for a change, happens to give the correct prediction? Even then, we truly need not worry too much. The past record shows and what RBI Governor also pointed out rightly – if the Govt is prepared ahead of time, the bad effects of a poor monsoon, especially a surge in inflation, can be largely mitigated. The period from 1999 to 2004 saw four below-normal monsoons and this included three droughts, yet food inflation was at an average of 4%.

So why does inflation go up? This is like solving a mystery of the Bermuda Triangle but one straight indicator is the Minimum Support Price (MSP) – this is the minimum price one has to pay for the crops. So when that MSP is hiked, inflation goes up and vice versa.

And before we end, a positive and reassuring note from Citi Research Economics in the April’15 report- (1) Water storage in 91 key reservoirs remains comfortable at 113% of last ten year average; (2) Agriculture productivity has improved with yield for food grains rising to 2101 kg/hectare vs 1727kg/ha ten years ago; (3) Contribution of winter crops has increased in overall agri production. Further, government’s “per drop more crop” initiative which involves soil mapping and other precision farming techniques are likely to enhance yield and reduce dependence on seasonal rainfall.

Well, June is not the right indicator of rains; it is July and August when India gets its entire quota. So let us watch the skies and keep tab on weather reports which will come in the month of July – that will give a more clear picture.

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