Indian share markets settled over 1% higher on Friday after falling for two consecutive days, led by a rise in the financial stocks and a 'normal' monsoon forecast during August-September by the India Meteorological Department (IMD). At the closing bell, BSE Sensex ended up by 391 points, while, NSE Nifty ended up by 116 points.
All sectoral indices ended the day in green with bank stocks and consumer durables stocks leading the pack of gainers.
Globally, Asian stock markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 0.1%, while the Shanghai Composite led the Hang Seng lower. They fell 1% and 0.1% respectively. European markets are higher today with shares in London leading the region. The FTSE 100 is up 0.61% while Germany's DAX is up 0.47% and France's CAC 40 is up 0.31%.
The rupee was trading at Rs 68.79 against the US$ in the afternoon session.
In the latest development, Nestle India Ltd reported a 50% jump in its net profit for the quarter ended 30 June, backed by lower cost of raw materials.
Net profit for the June quarter stood at Rs 4 billion as against Rs 2.6 billion in the year-ago quarter. Nestle India follows a January-December year for accounting.
Revenue from operations grew by 8.6% during the quarter, helped by volume growth across categories, to Rs 27 billion from Rs 25 billion in the same quarter last year. Its revenue from domestic market grew by 8.5% and exports by 8%% during the quarter under review.
Reportedly, the growth rates were adversely impacted due to lower reported sales by the change in structure of indirect taxes and reduction in realisations to pass on the GST (Goods and Services Tax) benefits.
On a comparable basis, domestic sales growth is 'estimated' at 14.5% supported by increase in volumes on a base impacted by softer trading ahead of the rollout of GST.
Nestle share price ended the down by 4.1%.
In another development, days after private weather forecasting agency, Skymet, predicted 'below normal' rains in the remaining two months of the southwest monsoon season 2018, state-run India Meteorological Department (IMD) contradicted it saying that rains in August and September would be 'normal' at 95% of the Long Period Average (LPA).
The forecast is with a model error of plus and minus 8%.
As per the Met department, the rains in August are expected to be normal and even higher than what was predicted in June when the weather office came out with its forecast for regional distribution. IMD said monsoon rain is expected to be 96% of the LPA. The forecast is with a model error of plus and minus 9%.
During the last two months, IMD said there is 63% chance of monsoon being normal and a 47% probability of it being below normal.
Further, IMD in its weekly weather update said that monsoon at least in NE India over the next two weeks monsoon will remain active.
In June and July, the southwest monsoon was 6% below normal largely due to a break in rains in June after it made a promising start. So far, the rains have been normal in around 84% of the country's landmass so far in the season, and deficient in the rest.
Meanwhile, the latest data from Central Water Commission (CWC) showed that water level in the 91-odd reservoirs continued to rise and during the week ended August 2 was 45% of their full capacity level.
Since, July 19, the water level in the reservoirs have increased by over 13%, which should augur well for coming rabi season mainly in those parts which are dependent on reservoirs for irrigation.
As far as the IMD's track record is concerned, Ankit Shah, Editor of Equitymaster Insider found out how accurate the IMD had been in forecasting rainfall in the past.
You can clearly see the gap between the forecasts and the reality. During some years, the gap is indeed quite wide.
The Forecast Is Not the Reality
So, one thing is certain - you cannot take the forecasts too seriously.
Ankit looks at weather forecasts just the way I look at economic and stock market forecasts.
You see, both the economy and the weather are very complex and dynamic systems. There are so many variables working together, that even a small variance in some of them can produce a completely unexpected outcome.
So, what should you do when dealing with such complex systems like the economy and stock markets?
Ankit believes, the safest method is to always insist on a margin of safety.
Then, even if the outcome is lower than forecasted, you will still be better off.
That dear reader, is the path of investing safely in the stock market.
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This article was originally published in English at www.equitymaster.com
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