Do Good Monsoons Boost Markets? July-August Rains Hold the Key

The relationship between monsoon rainfall and stock market performance in India has long intrigued analysts and investors. While it’s commonly believed that a good monsoon supports the economy and boosts rural demand, the data shows a more nuanced connection with the equity markets, especially when broken down by months.

💧 In 2025, the Indian Meteorological Department (IMD) has forecast monsoon rainfall to be over 6% above average. While this is a positive sign for agricultural output, market experts are quick to point out that timing and spatial distribution of rainfall are far more critical than the overall average.

According to Gaura Sengupta, Chief Economist at IDFC First Bank, “Rainfall in July and August is the most important from a temporal perspective, as most kharif sowing is completed by then.” She further emphasizes the importance of rainfall in major crop-producing states with low irrigation coverage, which could significantly impact rural consumption and crop yields.

Weak Link Between Overall Monsoon and Market Returns

A Moneycontrol analysis spanning data since 2008 reveals no consistent correlation between overall monsoon strength and Sensex returns. Even in years with above-normal rainfall, the markets have shown mixed performance.

📉 For example, in 2024, rainfall was 8% above the long-period average (LPA), yet the Sensex rose by just 1.2% between June and November. Interestingly, foodgrain output rose by 5%, which may have aided consumer-driven sectors. The BSE Consumer Durables and FMCG sub-indices increased by 4% and 5%, respectively.

July–August: The Make-or-Break Period

The real insight comes when isolating the July–August rainfall data. These two months are crucial for agriculture, and therefore rural income—which directly affects sectors like consumer durables and FMCG.

✅ In 2010, with strong and well-distributed rainfall, the markets soared over 14% between June and November.

❌ In contrast, 2015 saw 19% below-normal rainfall in July-August, and the markets declined 4% over the same period.

❌ Similarly, in 2018, another below-normal year, market returns dropped by 2.5% between June and November.

Why Consumer Durables React First

The consumer durables sub-index tends to reflect this correlation most clearly. That’s because rural demand spikes after good harvests, and households are more likely to spend on appliances and other non-essential items when their income is stable or rising.

📊 Thus, rains that are well-timed and evenly spread across key agricultural states can indirectly lift certain equity sectors, even if the broader market doesn’t always show strong gains.

Final Thoughts

While a strong monsoon helps the economy, its direct correlation with market returns is weak. What matters more is how rainfall in July and August supports kharif sowing and rural sentiment. As the 2025 monsoon unfolds, all eyes will be on not just the total rainfall, but when and where it falls.