Though the monsoon has seen some pick up in the months of August and September, experts believe it is a case of too little, too late. Leading brokerage house Enam Securities writes in its note dated September 14th 2012, "While of late the rain deficit has come down, late sowing and weak rains will also bring down overall crop yields. Rural demand is set to weaken due to rising farm costs, poor monsoons, and weakness in Services growth. Thus, private consumption (57 per cent of GDP) growth, that has been the mainstay of India’s overall growth, is likely to remain erratic and below potential."

Weak monsoons are likely to have a mixed impact on India Inc. Consumption and agriculture driven sectors such as automobiles, consumer staples and agri-inputs are likely to be worst hit, say analysts. Further, hydroelectricity utilities will also feel the heat due to a weak monsoon. Indirect impact of weak monsoons will be felt by Banks and Financials in case government eases loan repayment norms or waivers for agri-dependent borrowers. While slowdown in rural demand will hurt auto and FMCG companies, the rise in agri-based inputs (sugar, coffee, etc) will push up the raw material costs for FMCG players thereby impacting their margins as well. Further, given the already slowing down economic growth, companies may not be able to pass on these higher costs to the end users. Lower demand for agri inputs such as fertilisers is also likely to have a bearing on stocks such as United Phosphorus, Coromandel, GSFC, Rallis, amongst others. Positively, construction/roads and hydropower companies will gain from a weak monsoon. This is because the construction activity can now continue for a longer period. Also, thermal power companies with exposure to merchant power (JSW Energy, Lanco Infratech, Adani Power) could gain from lower output at hydropower plants and may also be able to hike prices in certain cases.

"On the expenditure side, we expect the very weak monsoons to have an impact on rural consumption demand, and exacerbate weakness in investment demand. Rural demand has been robust thus far, as evidenced by the strong volume growth of consumer companies in rural areas. However, we expect this to moderate due to the impact of the monsoons", believe Vikram Sahu and Aditya Soman of Goldman Sachs Research.

A weak monsoon will likely add to the woes of the banking sector which is already struggling with slowing credit offtake and worsening asset quality. Banks have about 38 per cent exposure to states affected by poor monsoons. Notably, public sector banks such as Dena Bank, Punjab & Sind Bank, Vijaya Bank and Bank of Maharashtra have about 75-90 per cent of their total branches in monsoon-deficient states while larger PSUs such as Bank of Baroda (55 per cent) and Punjab National Bank, Bank of India and Canara bank (30-40 per cent) have relatively lower rural presence. State Bank of India has close to 21 per cent exposure to these states. Announcement of any loan waivers/loan restructuring to the agri-dependent borrowers could pose risks to the banks. Thus, the banks' non-performing assets as well as provisioning could go up significantly in such a scenario.

"Our worry on restructuring/re-scheduling NPA recognition in case of affected farmers is not immediate and clarity regarding classification of these crop loans as restructured accounts is limited. Thus, risk of a large inch-up in impaired loans is low near-term but we believe re-scheduling impacts Agri portfolio significantly as they will take fresh cash credit for the next cropping season and they will have an additional Agri term loan to service along with his new cash credit facility. This increases the need of government support/waivers though fiscal situation will limit the ability of the government to move on waivers", believes Adarsh Parasrampuria, banking analyst at Prabhudas Lilladher.

Historical data suggests that FMCG stocks have largely under-performed in years of weak monsoon. ITC, though, is an exception to this trend. Notably, it gets a major chunk of revenue and profits (42 per cent and 80 per cent, respectively) from the cigarettes while other FMCG and agri sales together form about 40 per cent. Thus, it is relatively less impacted during poor monsoon years. In sharp contrast, HUL and Dabur scrips have underperformed in poor monsoon cycles. Auto components maker Bharat Forge has outperformed the Sensex in earlier periods of dry spells.

“Investor focus on the cash flow and balance sheet has taken the FMCG sectoral valuations to an all-time high PE (price to earnings) premium. The premium valuations make the sector less defensive, in our view. Additionally, our analysis of previous deficient monsoon conditions indicate that consumer stocks tend to underperform in the deficient monsoon period," Mahesh Nandurkar and Bhavesh Pravin Shah of CLSA write in a recent report.

Further, sectors largely dependent on replacement demand such as batteries and tyres remain largely unaffected by monsoon. Interestingly, air conditioner makers such as Voltas also benefit from weak rains as the demand for ACs heats up due to the prolonged summer.