The tail of the monsoon continues to wag, with rainfall again above the LPA: the cumulative rainfall for this year is now 4% above the LPA. Reservoir levels are now at 87% of capacity, about 15% above the same time last year. Sugar production is expected to reach 24.6million tones, enough to raise expectations for export restriction to be lifted. Already the ban on non-basmati rice exports is to be eased. Food inflation dropped to 8.8% in the latest weekly figures but some commodity prices are still a bit sticky. The recent sell-offs in global commodity markets are yet to be reflected. WPI inflation is expected to remain in the 9-10% range until December, when base effects and cooler commodity markets should see it decline steadily by the end of FY12.

Eoin Treacy's view Inflation has been a headwind for the Indian equity market over the last couple of years. The RBI raised interest rates aggressively, 12 times since March 2010, in an effort to combat these pressures. The spread between the 10yr and 2yr, which we view as a helpful proxy for credit availability, has compressed to zero over the last year, which is a clear depiction of how tight monetary conditions have become. The success of this year's monsoon, following last year's favourable conditions has helped to correct a water shortage and should promote growing conditions.

The monsoon is a peculiarity of the India market because of its large agrarian population and the challenges faced in feeding more than a billion people. Its influence has moderated somewhat as the manufacturing and IT sectors reduce reliance on agriculture but the impact of the rains is still an important economic consideration. Will it always be so?

Other countries, not least Australia and the USA, occasionally suffer from extreme weather. One of the primary reasons India is so subject to the monsoon's vagaries is because it does not possess the supply chain management expertise of other countries. Warehousing, refrigeration, transport and retail infrastructure are totally inadequate. It is therefore interesting that the government is considering allowing international retail companies to gain access to the Indian market. They would be expected to introduce the supply chain efficiencies present in other countries. This could smoothen out the cost structure of agriculture prices and would help with inflationary pressures.

Monetary tightening has been a headwind in a number of other Asian bourses, not least China. Signs that this trend is reversing could act as an important catalyst to spur investor demand in the region.