The India Meteorological Department has forecast a good monsoon this year — 106% of the long-period average (LPA), with rainfall expected to be broadly well-distributed across the country. That might be great news for farmers and the rural economy, but does it mean the stock market will follow suit and splash into a rally? Not necessarily.
A look at market performance over the past two decades reveals something curious. The five rainiest years since 2005 — 2013, 2019, 2020, 2022, and 2024 — saw average market returns of just 8.98%. In comparison, the five driest years — 2009, 2012, 2014, 2015, and 2018 — delivered a much stronger median return of 25.7%.
That’s right — more rain didn’t necessarily mean more gains. In fact, the year with the worst rainfall in that set, 2009, saw one of the strongest post-crisis rebounds, with markets shooting up 81.03%. Meanwhile, in years when the skies poured generously, like 2020 and 2022, returns were modest despite healthy monsoons.
According to analysts, there’s more than weather at play. Global liquidity, economic momentum, and corporate earnings tend to drive market sentiment far more than rainfall patterns. Satish Menon of Geojit Financial Services believes that unless there is a drastic deviation from the norm, monsoon impact on markets is fairly muted.
He also noted that the market may have already priced in a fair bit of optimism and is currently running slightly ahead of fundamentals. “It’s the earnings results in the next few quarters that will likely decide the market’s next direction — not the monsoon,” Menon said.
That said, rains still matter for the rural economy. A good monsoon lifts agricultural output, boosts rural consumption, and gives a leg-up to sectors like fertilisers, farm equipment, FMCG, and two-wheelers. But the influence of agriculture on the overall economy has been steadily falling. From 24.19% of gross value added (GVA) in 2003-04, agriculture’s share has dropped to just 14.41% in 2024-25.
So while rural demand is certainly important, the weight of agriculture is not what it used to be. This limits the ripple effect of a good or bad monsoon on broader indices like the Nifty 50 or Sensex.
Manish Sonthalia of Emkay Investment Managers, according to Business Standard, echoed a similar view. He believes monsoons aren’t the biggest story in town right now. “It’s not the only determinant of market performance,” he said, pointing instead to global events like tariff talks and US budget changes as bigger triggers.
Sonthalia expects markets to move sideways — or remain “range-bound” — until some of these larger geopolitical and economic uncertainties are sorted out, possibly by July. That includes clarity on global trade tensions and the impact of policy shifts in the US.
The good news? Corporate earnings haven’t been as weak as many had expected. While large-cap companies on the Nifty 50 posted modest growth of around 5% compared to the previous year, small and midcap firms have clocked double-digit gains.
That shows there’s still energy in the market — even if it’s coming from the smaller engines.
So, while the forecast calls for a wet and widespread monsoon, the stock market may not necessarily dance in the rain. If you're hoping for a market rally just because the clouds are generous, you might want to look elsewhere — maybe at global cues or earnings reports.
Monsoons may green the fields, but they don’t always make the markets bloom.