Above normal monsoon to drive tractor sales; time to buy related stocks?

A normal monsoon, as predicted by the India Meteorological Department (IMD), is likely to boost farmers' income which may drive up tractor demand, analysts said

Tractor sales may rise: Hopes of green shoots in the rural economy, led by normal monsoon this season, have turned analysts bullish on tractor stocks.

A normal monsoon, as predicted by the India Meteorological Department (IMD), is likely to boost farmers' income which may drive up tractor demand, they said.

"Rural economy is on the way up. Apart from a normal monsoon, government policies such as Agriculture Infrastructure Fund (AIF) and Market Intervention Scheme and Price support Scheme (MIS-PSS), among others, aimed at improving agriculture and farmers' income, is set to support tractor sales in the near term," said Ambareesh Baliga, an independent market analyst.

As a strategy, analysts said investors may hold tractor stocks in the near-term, and adjust their positions, if at all, once more data is available on the progress of the monsoon across India.

Tractor sales in fast lane

Tractor sales surged from 56,625 units in April 2024 to 70,065 units in May 2024, marking a 23.7 per cent month-on-month (M-o-M) increase. However, year-on-year (Y-o-Y) sales dipped 1.06 per cent.

Individually, Mahindra & Mahindra tractor sales grew 6 per cent to 35,237 units in May 2024, from 33,113 units in May 2023.

According to Hemant Sikka, president of farm equipment sector, Mahindra & Mahindra Ltd, the forecast of an above-normal monsoon, coupled with the timely arrival of southwest monsoon in Kerala and northeast states, has improved the on-ground sentiments of the farmers.

"Land preparation activities for Kharif crops are expected to begin on time, which is likely to boost tractor demand in the coming months," he said.

The India Meteorological Department (IMD) has forecast above normal rains at 106 per cent of the long-period average (LPA) this year, while Skymet has predicted a 'normal' monsoon season in 2024 with rainfall at 102 per cent of the LPA from June to September.

Channel checks of various brokerages, further, show higher inventory build-up in tractors and two-wheelers' segment in anticipation of good demand.

"With improved rural income stemming from favourable weather conditions and rising minimum support prices (MSP), farmers are increasingly buying tractors. The demand is expected to hold up in the near future," added Deepak Jasani, head of retail research at HDFC Securities.

What should investors do?
 

On the bourses, tractor stocks like Escorts Kubota have seen strong growth, with their shares skyrocketing nearly 90 per cent in one year while VST Tillers Tractors's stock has zoomed over 41 per cent. 

M&M stock, meanwhile, zoomed over 103 per cent during the same period. 

Long-term investors, according to analysts, may maintain their positions without rushing to sell. They could even consider adding the stocks on dips but keenly track further developments in the monsoon's progress.

"Investors should add to their long position in the market before the month concludes, in a bid to reap the benefits of better June sales. Investors should maintain investment discipline rather than selling prematurely," added Deepak Jasani of HDFC Securities.