Crops, shares at risk from monsoon woes

Crops, shares at risk from monsoon woes

New Delhi: Forecasts of weak rains in the next five days and inadequate water in Indian reservoirs have raised the risk to the country’s cane and soybean crops, and fears of a wider economic fall out could spook the stock market.

India’s weather office said on Friday rainfall would be meagre in the main soybean region in central India, which has been unusually dry for more than 15 days and needs rains in the next few days to prevent crop damage.

Government data also showed the seasonal rise in water level in reservoirs was slower than normal, raising the prospect of more power cuts with a drop in hydropower output.

The water level at India’s 81 main reservoirs, also important for irrigating winter crops such as wheat and rapeseed, had risen rapidly in the previous week.

The country experienced its driest June in 83 years but rainfall was almost normal in July in most regions, except for the northern sugarcane-producing state of Uttar Pradesh, where most districts are in the grip of a drought.

Monsoon woes mounted on Thursday after the weather office said rainfall in the past week was a third of the average, almost as bad as the worst week in June.

Weak monsoon rains have hurt the cane crop and prospects of large imports by the world’s top consumer of sugar have helped drive raw sugar futures to a 28-year high.

The main stock index was trading down 2% by 0735 GMT on Friday after having fallen 2.5% the previous day, with last week’s low rainfall damping sentiment, traders said.

“Stocks in some sectors had gone ahead of the market, and investors are thinking it is a good time to take profits. The monsoon is also not progressing the way it should," said A N Sridhar, a fund manager at Sahara Mutual Fund.

Annual monsoon rains are vital for India’s 1.1 billion people although the share of agriculture in the gross domestic product has halved to 17.5% in the past three decades as manufacturing and services sectors expanded while farm output stagnated.

But analysts say the monsoon is still crucial for India.

“This is because nearly 55% of the labour force is employed in agriculture and only 42% of the area under major crops is irrigated," said Rajeev Malik at Maquarie Securities.

Sectors such as tractors, motorcycles, mobile phones and fast-moving consumer goods could be adversely affected, he added.

“India has been lucky with the July showers, but the current month remains uncertain," he said.