Indian Monsoon Forecasts is a Positive Signal for Consumption

What’s the Point?

• Recently, the Indian Meteorological Department (IMD) has forecasted that the southwest monsoon is likely to set over Kerala between May 22, 2025 and May 28, 2025, which is much earlier than the usual onset date of June 1, 2025. As per the Long Range Forecasts issued in mid-April 2025 by the IMD, the Southwest Monsoon seasonal (June to September) rainfall over the country as a whole during 2025 is most likely to be above normal – greater than 104% of the Long Period Average (LPA).
• Indian agriculture and allied sectors employ nearly ~42% of India’s population and contributes to ~14% of India’s Gross Domestic Product (GDP). Keeping that in mind, this positive development bodes well for consumption as it boosts rural incomes and lowers inflation expectations, which is significant considering that inflation has already touched 3.16% in April 2025 – the lowest point since July 2019.

Numbers in Perspective

Source: International Research Institute for Climate and Society (IRICS), IMD

Neutral El Niño – What is this phenomenon and what does it mean for the Indian Monsoons?

According to the El Niño-Southern Oscillation (ENSO) forecast issued by IRICS in May 2025, there is a high probability (92%) of ENSO-neutral conditions continuing during May to July 2025, while the chances for La Niña and El Niño are much lesser – at 5% and 3% respectively. Between the periods May to July 2025 and September to November 2025, the favour of ENSO-neutral conditions are expected to gradually decrease from 92% to 48%, with the probability of La Niña conditions expected to increase from 5% to 35% during the same period.

“Neutral” El Niño – the condition currently prevailing over the equatorial Pacific region – is defined as neither El Niño nor La Niña. During this period, sea surface temperatures in the tropical Pacific are generally near the long-term average. However, there can be instances when atmospheric circulation patterns do not align perfectly with the oceanic conditions. Hence, prima facie, while the higher neutral El Niño conditions might lead readers to conclude that monsoons could be less intense, the current atmospheric circulation features are similar to La Niña conditions.

Talking about India – At present, neutral Indian Ocean Dipole (IOD) conditions are present over the Indian Ocean. The latest climate models forecast indicates that the Neutral IOD conditions are likely to continue during the southwest monsoon season. The forecast based on both dynamical and statistical models suggests that, the monsoon seasonal rainfall is quantitatively likely to be 105% of the LPA with a model error of ± 5%.

The 5 category probability forecasts for the seasonal (June to September) rainfall over the country are given below:

Source: Press Information Bureau (PIB), IMD

The above table suggest that that there is strong probability (59%) of southwest monsoon seasonal rainfall likely to be in the above normal category or higher (>104% of LPA). The spatial distribution suggests above-normal seasonal rainfall is very likely over most parts of the country except some areas over Northwest India, Northeast India and South Peninsular India, where rainfall is likely to be below-normal.

What does an “Above-Normal Monsoon” indicate for the Indian Economy?

Currently, the Ministry of Agriculture and Farmers’ Welfare is making a concerted effort to increase the area of land under irrigation for better crop yield. As a matter of fact, India has recently surmounted China to emerge as the world’s top rice producer (149 million tonnes for India vs 144.62 million tonnes for China in FY25). This has happened due to higher production growth in states where the State Governments are taking measures to increase irrigation coverage, in addition to the incentivization of procurement through bonuses, assured purchases of the crop, subsidized borewell connection and free electricity.

Despite this achievement, there are states which have less than 50% irrigation coverage. Hence, the higher-than-normal forecasted monsoons are a bigger positive, especially considering that India receives around 76% of its total annual rainfall during the four months of its Southwest Monsoon. An above-normal level of rainfall indicates that the supply-side of the economy could see a boost. This could support the rise in consumption (A key metric for India’s GDP growth), especially given the backdrop of lower inflation and RBI’s monetary measures aimed at infusing higher liquidity into the system.

Keeping this in mind, investors could consider investing in HDFC Non-Cyclical Consumer Fund. This Fund aims to invest in companies, which are (a) Across different market cap segments, (b) Leaders and/or are gaining market shares due to better execution, scale, better adoption of technology etc., while focussing equally on companies which are likely to witness steady and secular growth, and (c) Likely to see a turnaround in profitability and have potential of being re-rated.

Sources: IMD, PIB, IRICS, RBI, and other publicly available information

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