The Indian economy has witnessed massive growth in the past few decades. Major sectors like IT, Infrastructure, Automobile and Financials among others have fueled this growth. However, India continues to remain a predominantly agricultural economy.
As a result, numerous weather phenomenas have a deep impact on this critical sector. One such phenomenon which has had a significant impact in recent years is El Nino. So, what is El Nino? How will it impact the Indian economy? Which are the stocks that are vulnerable to this weather phenomenon? Let’s find out!
What is El-Nino?
El-Nino is a weather phenomenon where the central and eastern part of the tropical Pacific Ocean warms up causing adverse climatic events like erosion and coastal flooding. It lasts for roughly 9-12 months.
Since 1950, this phenomenon has occurred a total number of 26 times with the latest one occurring in 2015-16.
Now, the pertinent question remains: Will El-Nino affect India? If it does, then what will be the impact? Moreover, how has El-Nino impacted India previously? Let’s try and find the answers.
How will El-Nino impact India?
The impact of El-Nino over the past few years has been quite worrying for the Indian economy. This is because El-Nino mostly results in reduced rainfall where it occurs.
Notably, it can be observed from the past roughly 25 years that El-Nino has primarily affected the Indian monsoons negatively. Since 1997, India has witnessed the El-Nino phenomenon for a total of eight times with varying degrees of severity.
Barring one time, when the country experienced “Above Average Rainfall” (in 2019), all the other times the amount of rainfall was either “Deficient” or “Below Normal” with a “Severe Drought” experienced in 2009.
Now, with the dangers of another El-Nino rearing its head again, experts remain concerned about its impact on the country.
Experts remain of the opinion that El-Nino can result in prolonged dry periods for the country characterized by high temperatures and increased probability of a rainfall deficit.
The signs are ominous for the Indian economy if El-Nino turns severe. In such a scenario, which sectors and the stocks will be most affected? Let’s have a look.
El-Nino Impact: Sectors and Stocks
Agriculture: If any sector that would bear the biggest brunt of El-Nino, it should be the agriculture sector. The resultant danger of droughts due to El-Nino has reduced the productivity of agricultural production by 20-40% in recent years.
Consequently, this would have a negative impact on food inflation. This can be detrimental to the common public as inflation is already at heightened levels presently in spite of continued rate hikes by the Central Bank.
Another casualty of reduced productivity of the agriculture sector is a blow to the rural demand. Since the majority of the rural populace depends on agriculture for their livelihood, a fall in agricultural production is expected to be a body blow to the rural economy.
El-Nino impacts the agricultural sector - listed below are the 10 agricultural stocks with highest market cap
| Name | Current Market Price | 1-Year Share Performance |
| UPL | Rs 738 | -9.8% |
| Rallis India | Rs 205 | -27.8% |
| PI Industries | Rs 3,032 | 3% |
| Dhanuka Agritech | Rs 640 | -17.1% |
| Coromandel International | Rs 928 | 10.3% |
| SRF | Rs 2,421 | -7.3% |
| Bayer Cropscience | Rs 4,116 | -15.8% |
| Aarti Industries | Rs 546 | -42.7% |
| Bombay Burmah | Rs 871 | -6.1% |
| Kaveri Seed | Rs 498 | -18.4% |
(as on 12.4.2023)
Consumption: The next sector that stands to be hurt due to El-Nino is consumption. One of the after effects of El-Nino is a rise in inflation. Now, for the consumer goods sector, high inflation has a twofold adverse effect.
Firstly, there is a rise in raw material costs which consequently leads to a rise in prices for the consumer. Secondly, inflation hurts the demand for these products as income levels of the end consumer take a hit.
El-Nino impacts the consumer goods sector - listed below are the 10 consumer goods stocks with highest market cap
| Name | Current Market Price | 1-Year Share Performance |
| ITC | Rs 394 | 46.2% |
| HUL | Rs 2,528 | 17.5% |
| Varun Beverages | Rs 1,445 | 114.4% |
| Britannia | Rs 4,282 | 27.8% |
| Dabur | Rs 519 | -6.7% |
| Godrej Consumer | Rs 970 | 23.3% |
| Marico | Rs 479 | -7.9% |
| Nestle | Rs 19,460 | -1.1% |
| Colgate Palmolive | Rs 1,559 | 1.9% |
| Tata Consumer | Rs 719 | -12% |
(as on 12.4.2023)
Banking: A probable slowdown in the banking sector can also be one of the negative effects of El-Nino. The resilience of the credit growth in India has been exemplary in recent times. This can be gauged from the fact that bank loans rose by 14.6% from the previous year to Rs 136.8 lakh crores.
However, high inflation, elevated interest rates and a slowdown in rural demand can put a dent on this growth. This is because consumer sentiments will be hurt and the propensity to take loans to start businesses will also take a hit. Consequently, demand for loans will be negatively affected, hurting the prospects of the banking sector.
El-Nino impacts the banking sector - listed below are the 10 banking stocks with highest market cap
| Name | Current Market Price | 1-Year Share Performance |
| HDFC Bank | Rs 1,685 | 15% |
| ICICI Bank | Rs 891 | 16.9% |
| Axis Bank | Rs 852 | 7.4% |
| SBI | Rs 529 | 2.2% |
| Kotak Mahindra | Rs 1,845 | 3.7% |
| IndusInd Bank | Rs 1,075 | 9.3% |
| Bank of Baroda | Rs 170 | 42.7% |
| PNB | Rs 47 | 28.5% |
| AU Small Finance Bank | Rs 580 | -17.3% |
| Federal Bank | Rs 127 | 28.6% |
(as on 12.4.2023)
Automobile: One of the consequences of a rise in inflation due to the El-Nino weather phenomenon can be on the automobile industry. The timing of this event could not have been worse as the Indian auto sector has just started to recover from years of slowdown.
Notably, the automobile industry contributes about 7.1% to the country’s GDP and 49% of its manufacturing GDP presently.
Moreover, a hit to the rural demand can particularly affect the sales of two wheelers and tractors. The fall in tractor sales can be directly attributed to the fall in agricultural productivity while a decline in two wheeler sales can be due to the reduction in income levels for the population dependent on agriculture.
El-Nino impacts the auto sector - listed below are the 10 auto stocks with highest market cap
| Name | Current Market Price | 1-Year Share Performance |
| Tata Motors | Rs 465 | 7.9% |
| Bajaj Auto | Rs 4,284 | 15.9% |
| Maruti | Rs 8,624 | 15.5% |
| M&M | Rs 1,209 | 39.6% |
| Eicher Motors | Rs 3,129 | 25.6% |
| TVS Motors | Rs 1,135 | 74.6% |
| Bharat Forge | Rs 768 | 4.8% |
| Tube Investments | Rs 2,640 | 51.4% |
| Hero Moto | Rs 2,480 | 9% |
| Balkrishna Industries | Rs 2,052 | -2.1% |
(as on 12.4.2023)
Conclusion
The probability of El-Nino occurring and the extent of its effect on the Indian economy is still a guessing game for many still. However, the opinion of market experts and experience in recent years have only strengthened the fact that El-Nino will most likely have a negative impact on the economy.
This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.
What is El-Nino?
El-Nino is a weather phenomenon where the central and eastern part of the tropical Pacific Ocean warms up, causing adverse climatic events like erosion and coastal flooding. It lasts for roughly 9-12 months and has occurred 26 times since 1950, with the latest one occurring in 2015-16.
How will El-Nino impact India?
El-Nino can impact India by reducing rainfall, resulting in droughts and lower agricultural productivity. This can lead to food inflation, a blow to rural demand, and a negative impact on the rural economy. Additionally, El-Nino can also cause a rise in inflation, affecting the consumer goods sector, and a potential slowdown in the banking sector due to elevated interest rates and reduced credit growth.
Which sectors and stocks are vulnerable to El-Nino?
The agriculture sector is the most vulnerable to El-Nino, with reduced productivity of agricultural production by 20-40% in recent years. Stocks in the agricultural sector such as UPL, Rallis India, PI Industries, and others listed in the data provided may be impacted. The consumer goods sector can also be affected due to high inflation, with stocks like ITC, HUL, Britannia, and others listed in the data at risk. The banking sector may also face potential slowdown due to elevated interest rates and reduced credit growth.