El Niño - Spoiler Alert!

It goes without saying that Indian growth story is strongly dependent on rainfall. Any shortfall, and we all scramble for places to hide from resulting high prices of agri commodities.

To make matters worse, a recent forecast that El Niño weather phenomenon, has a 90% chance of striking this year, can cause trouble for India. Rise in prices due to drought conditions (deficient water supply, lower crop output) in many areas led to riots in several countries in 2007.

As you can see in the graphic below, that India will suffer a dry spell with weaker monsoon rains but US will get a relief from drought in the west.

Click image to enlarge

The latest prediction is from European Centre for Medium-range Weather Forecasts, which is one of the most reliable of prediction centres around the world.

They have clarified that the amount of warm water in the Pacific is perhaps the biggest since the 1997-98 event which led to hottest year on record at that time.

The picture will become clearer in a month or two whether this year’s El Niño will be a small or a major event.

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Weekly Market Commentary - June 16, 2014 - June 20, 2014

According to the Ministry of Oil and Natural Gas, India imported about 13% of its crude oil requirements from Iraq last year and this year was planning to take that figure to 20%. Iraq is the second largest crude producer in the OPEC group. With only half of the supplies covered so far, India has to rush to other players to secure oil – likely at higher prices now. According to one govt. estimate, oil price can rise to $120 per barrel for several months and may hit the govt. budget by atleast $3.3bn.

Sensex ended this week down by 0.5% while Nifty was down by 0.4% and Midcap down by 0.7%

Monday - Sensex down by 0.1%, Nifty down by 0.1%, Midcap up by 0.4%
Sensex and Nifty continue to trade lower as Iraq crisis weigh on investor’s mind. Brent rose to $113 per barrel, a nine-month high as ISIS strengthens its position in Iraq. Rise in crude prices coupled with weak monsoon can spell trouble for India. WPI for May came in about 6% - five month high due to higher food and fuel costs.

Tuesday - Sensex up by 1.3%, Nifty up by 1.3%, Midcap up by 1.3%
While rising oil prices has put Indian finance ministry in a difficult position, such is not the case with oil and gas companies. Indian upstream sector gained as investors lapped up shares on expectations of margin expansion. Sentiment on the street remained positive with investors buying in every decline.

Wednesday - Sensex down by 1.1%, Nifty down by 1.0%, Midcap down by 0.9%
Rising crude prices seems to make everybody apart from upstream companies very nervous. Sensex and Nifty slumped again as rising crude prices raised concerns about higher inflation and govt.’s finances. Rising crude prices have also hushed the chatter about interest rate cuts.

Thursday - Sensex down by 0.2%, Nifty down by 0.2%, Midcap down by 0.7%
Oil and Gas stocks slumped on concerns that India may allow higher gas prices only for incremental output from existing fields. Brent crude also hit a further high of $115 per barrel as fighting intensifies in Iraq.

Friday - Sensex down by 0.4%, Nifty down by 0.4%, Midcap down by 0.7%
Sensex and Nifty continued to trade lower as investors continued to focus on Iraq issue in short term. Market is expecting major reforms in the first budget of Modi govt. but situation in Iraq has made things little difficult with rising crude prices feeding into higher inflation and deficits.