Below-Normal Monsoon and Geopolitics Tumble Sensex 1,092 Points

Monsoon Risk: The 90% LPA Forecast and the Food Inflation Chain

The India Meteorological Department (IMD) delivered a trigger that rattled Indian equities on Friday. The June-September southwest monsoon is expected at 90% of the long-period average, with a model error of 4%. Most regions except the Northeast will see below-normal rainfall. For a market already pricing in a tight inflation outlook, that number signalled trouble.

Vinod Nair, Head of Research at Geojit Investments, put it plainly: “The prospect of deficient rainfall, coupled with the increasing likelihood of an El Nino weather pattern, has heightened fears of elevated food inflation in the coming month.” Food inflation forces the Reserve Bank of India to keep rates higher for longer, which directly hits consumption-driven stocks and broad valuations.

The selling was broad. Among Sensex components, Power Grid, InterGlobe Aviation, NTPC, Mahindra & Mahindra, Tata Steel and Bajaj Finance were the major laggards. Auto, metals and financials – sectors most exposed to domestic demand and rural income – bore the brunt. The Sensex closed down 1,092.06 points (1.44%) at 74,775.74 after dropping as much as 1,278.69 points intraday. The Nifty lost 359.40 points (1.50%) to finish below 23,547.75.

Geopolitical Layer: US-Iran Ceasefire Uncertainty Freezes FII Flows

Monsoon risk was not the only headwind. The session also carried the weight of unresolved US-Iran tensions. Initial optimism over a possible extension of the ceasefire arrangement faded after Washington failed to issue a formal confirmation.

Hariprasad K, Research Analyst and Founder of Livelong Wealth, explained the mechanism: “The absence of formal confirmation from Washington kept global institutional investors cautious ahead of the weekend, limiting aggressive risk-taking across equities.” That caution showed up in the Foreign Institutional Investor (FII) flow data. FIIs offloaded equities worth Rs 1,042.70 crore on Wednesday, the most recent trading session before the weekend. The combination of local weather risk and geopolitical ambiguity created a double sell trigger.

The Crude Oil Buffer

One mitigating factor: Brent crude dropped 1.52% to $92.29 per barrel during the session. Lower energy prices ease India’s import bill and reduce cost-push inflation. Nair noted that the downside risk from the monsoon forecast is “partially mitigated by the recent moderation in crude oil prices and bond yields.” But a single session of lower oil is not enough to offset a multi-month food inflation risk, especially if El Nino materialises.

Sector Rotation: IT Defensives Gain While Domestic Cyclicals Bleed

Not every stock fell. The day’s gainers were Tech Mahindra, HCL Tech, Larsen & Toubro and Infosys (INFY). The pattern signals a rotation out of domestic-demand exposed sectors and into export-linked technology names. IT revenues are dollar-denominated, and any depreciation of the rupee against the dollar further improves their earnings outlook. The sector also has minimal exposure to Indian food inflation or geopolitical risk within the subcontinent.

On AlphaScala’s proprietary scoring system, INFY carries an Alpha Score of 57/100 (Moderate). That label reflects a relatively stable risk-reward profile in a market where domestic cyclicals are repricing lower. For traders building a watchlist, the IT sector’s defensive bid is worth tracking – but only as long as the US-Iran issue and monsoon uncertainty remain unresolved.

What Would Confirm the Sell-Off or Weaken It

Next catalysts for further downside:

• A formal El Nino declaration from global weather agencies. That would lock in the deficient rainfall scenario and extend the food inflation timeline.
• Renewed escalation in US-Iran rhetoric without a ceasefire extension. That would push FII outflows deeper and raise crude prices again.
• FII selling accelerating past Rs 2,000 crore in a single session. Friday’s fall was driven by a late-minute rush; sustained institutional selling would confirm the trend.

What would weaken the thesis:

• A US-Iran ceasefire confirmation early next week. That would remove one layer of risk and allow FIIs to return selectively.
• Actual monsoon rainfall tracking above the IMD’s 90% LPA estimate. The model error means the final number could be 94% – still deficient but less alarming.
• A sharp drop in crude below $90, giving the RBI room to pause rate hikes even if food inflation ticks up.

Asian markets offered no clear direction. South Korea’s Kospi and Japan’s Nikkei 225 ended higher, while Shanghai’s SSE Composite closed lower. The lack of a full risk-on signal from overseas left Indian equities vulnerable to domestic-specific catalysts.

The Sensex and Nifty have now fallen for three consecutive sessions. Friday’s close near the session low suggests momentum remains to the downside. Traders watching this setup should track the monsoon progress reports and any FII flow data from Monday’s session. The monsoon forecast is a single data point; the actual rainfall over June and July will determine whether the food inflation fear becomes a full-blown trading theme.