One may wonder what is the correlation between monsoons and the rate sensitive sectors like banks and NBFCs. Actually the relationship is partially direct and largely indirect. Poor monsoons result in falling rural incomes and that leads to delays and defaults in bank loans. But that is a problem of smaller magnitude since a chunk of bank defaults stem from industrial lending. The real issue is the inter-relationship between monsoons and inflation. A poor inflation leads to high food inflation. This is the sticky component of inflation and that dissuades the RBI from cutting interest rates in the economy. This is negative for sectors like real estate, banks and auto that are dependent on lower rates for boosting their business. Thus while rate sensitive stocks do not get directly impacted, the indirect impact is serious enough.