Imagine that you go to work on a pleasant morning. But by the time you reach office, the weather changes for the worse. It starts to rain heavily and most of your colleagues skip work for the day.
The result: productivity stalls and work gets delayed. The bottom line is that the company’s profitability gets affected.
Now, as an investor, your returns could be similarly affected if the weather plays spoilsport. But on the other hand, good weather can greatly increase the productivity and returns of a company. That’s why it can be quite useful to have a pulse on the weather conditions in the country.
Here are a few sectors and industries that could be impacted by fickle nature of weather.
a) Agriculture sector
It is a well-known fact that the weather can either make or break this sector. Crops in India are heavily dependent on the monsoon rains. A good monsoon season generally results in higher productivity of Kharif crops. As a result, agriculture stocks perform better on the stock market.
On the other hand, poor climate conditions can adversely affect the performance of stocks. For example, the annual Economic Survey suggest that agriculture income could reduce by 25% in the medium term due to climate changes. This could affect the earnings and in turn, the share price of agro-based companies.
b) Consumer-focused companies
When the rains are good and all goes well, farmers generally enjoy higher financial returns. Higher income among the rural sectors can push consumption. As a result, fast moving consumer goods (FMCG) companies enjoy a boost in sales in rural areas. For instance, many reports now indicate that a good monsoon last year is likely to have a positive effect on growth revival for consumer goods companies in the next twelve months.
c) Auto sector
Healthy monsoon not only aids the agriculture sector but also the automobile sector. Good rains and higher rural income pushes demand for bikes, cars and other automobiles like tractors and trucks.
d) Aviation industry
The aviation industry is another major sector that is heavily dependent on the weather. Clear skies are always preferable since it is the best weather for planes to travel. But in case of heavy rains, storms, dense fog or other natural disasters, there is no option but to keep the planes grounded. This is damaging because with every cancelled flight, aviation companies lose money.
e) Beverage industry
Clearly, water is a major raw material for the production of various products such as aerated drinks and bottled water. But what if it is not possible to access enough water? The company may have to shut down productions.
Here is an example: Erratic rain patterns and extreme conditions threatened the availability of water for a Coca-Cola plant in Kerala. As a result, the company started extracting too much ground water. Realising this, the government authorities forced the company to close down its plant due to its unsustainable water extraction practices.
The bottom line is that if you are an investor, it can be necessary to find out how the weather impacts the different sectors and companies in which you have invested. This will help you make the right decision, especially if you are investing in sector funds.