El Nino is a climate occurrence when the Pacific Ocean’s surface waters become excessively warm, affecting worldwide weather patterns and ecosystems. Low rainfall, droughts, heat waves, crop failures, and food shortages are all El Nino effects in India.
According to the most recent weather forecasts, an intense El Nino will likely occur in 2024, posing a significant threat to the country’s GDP, agriculture, water resources, financial well-being, and overall economic health.
We can’t sit back and time off now that we understand the El Nio effects in India and how they can disrupt our economic equilibrium. We must prepare for and deal with the potential impacts of El Nino.
In this article, we will provide insights into the strategies and policies that can help mitigate the adverse effects of this climate anomaly. Also, we will give some valuable share recommendations for investing to help you smoothly ride through the rough waters and pocket some good gains.
Effects of El Nino in India
Some of the effects of El Nino in India that are important for you to know are:
- Reduced Rainfall and Drought
El Nino frequently disrupts the usual monsoon cycle, reducing rainfall and drought conditions across most of India. Historically, at least half of the El Nio events have been directly connected to summer monsoon droughts. Drought can disrupt crop output, food security, water availability, and the livelihoods of millions of people.
- Increased temperature and heat waves
El Nino can also aggravate the rise in temperature and heat extremes caused by global warming over India. Higher temperatures can cause soil moisture to evaporate, intensify drought, and induce heat stress and health concerns in humans and animals.
- Erratic rainfall and floods
El Nino can also cause unpredictable rainfall patterns in India, leading to torrential downpours and floods in some areas while remaining dry in others. For example, in 2015, Chennai had an unprecedented rainfall event that included the region’s most significant one-day rainfall in almost a century, ascribed in part to the intense El Nino event between 2014 and 2016. The severe downpour caused widespread flooding, shifting, infrastructure, and economic damage.
5 Measures You Can Adopt to mitigate the effects of El Nino On Your Portfolio
Here are the 5 measures you can adopt-
- Diversify your portfolio to reduce El Nino risk.
Diversify your portfolio across different sectors, geographies, and assets, such as equities, bonds, commodities, and currencies, to reduce the exposure and risk of any single sector or market that may be adversely affected by the El Nino phenomenon.
- Using Derivatives to protect from El Nino volatility
Investors can hedge their positions with derivatives, such as futures, options, and swaps, to protect themselves from the potential losses or volatility caused by the El Nino-induced changes in the prices of commodities, currencies, interest rates, and inflation.
- Invest in thematic funds or ETFs that benefit from the El Nino effect in India
Invest in thematic or exchange-traded funds (ETFs) that focus on sectors or themes that may benefit from the El Nino effect, such as water, renewable energy, climate change, or agriculture.
- Be Optimistic
Take advantage of the opportunities created by the El Nino effect, such as the lower valuations, higher dividends, or attractive growth prospects of some companies or sectors that may be undervalued or oversold due to the El Nino impact, and buy them at a bargain price.
- Monitor and Rebalance Your Portfolio Regularly
Monitor the El Nino conditions and forecasts regularly, and adjust your portfolio and strategy accordingly, based on the latest information and analysis available from reliable sources.
Some Share Recommendations To Make Your Portfolio Resilient To The El Nino Effect
Some of our share recommendations based on our in-depth research that can add to the immunity of your portfolio are-
- IT and pharma: These are export-oriented sectors driven by global demand that earn a large share of their revenue from overseas markets, especially the US and Europe. A weak monsoon and lower domestic demand can cause a depreciation of the Indian rupee, which can boost the earnings and margins of these companies.
- Power and renewable energy: These sectors can benefit from the higher temperatures and lower rainfall caused by the El Nino effect, as they can increase the demand and supply of electricity and renewable energy sources.
- FMCG and consumer goods: These sectors, having their strong presence in rural markets, may seem to be negatively affected by the El Nino effect, as they derive a large portion of their sales from the rural markets, which are influenced by the farm income and consumption patterns.
The Bottom Line
El Nino effects in India is a hot topic in India right now, sparking interest and anxiety among many segments of society about how it may influence their life.
As an investor, you should be aware of the possible implications of El Nino effects in India to assess the performance of numerous sectors and companies directly or indirectly tied to agricultural output and demand.
To limit the effects of this natural occurrence and meet your investing objectives, use the share recommendations suggested in this article or ask your financial advisor.