El Niño, weak monsoon cloud tractor, two-wheeler sales; analysts weigh risk

A weak monsoon triggered by El Niño could weigh on tractor demand and entry-level two-wheeler sales as rural incomes and farm cash flows come under pressure. Notably, both segments have performed better than expectations in Q1 FY27, supported by GST rationalisation and a favourable base effect.  Analysts believe the impact is unlikely to be immediate and is expected to become more visible in the second half of FY27.

 

"Tractor fortunes have always been tethered to the monsoon. When rainfall disappoints, farm output suffers, rural incomes shrink, and tractor demand typically follows suit. El Niño years, historically linked to below-normal rains, have typically softened this segment. Entry-level two-wheelers, closely tied to the same rural income dynamics, tend to follow a similar pattern," said Vincent K A, senior research analyst at Geojit Investments.

 

"Both tractor and two-wheeler sales have outperformed expectations in Q1FY27, buoyed by GST rationalisation and a favourable base effect from H1FY26. This suggests the real test for these segments will arrive later, with H2FY27 likely bearing the brunt of any slowdown," Vincent said.

 

Rainfall spread key to demand

 

Analysts said the impact of a weak monsoon would depend more on the distribution of rainfall across key agricultural regions rather than the overall national rainfall figure.

 

"Distribution of rainfall matters more than the aggregate quantum. What truly shapes agricultural outcomes is how the rainfall is distributed across regions. A strong national average means little if key growing belts miss out," Vincent said, adding that sowing progress is showing some early weakness, but remains recoverable if rainfall distribution improves. 

Entry-level two-wheelers may also see moderation in demand, though the impact is expected to remain relatively limited. Tractor segment, Uttam Kumar Srimal, senior research analyst at Axis Direct, said is relatively more vulnerable than entry-level two-wheelers, as demand is closely linked to farm income, reservoir levels, sowing activity, and the overall crop outlook. 

 

Earnings risk linked to farm profitability

 

Analysts said weak monsoon conditions would translate into a meaningful earnings risk only if they result in sustained pressure on rural liquidity and farm profitability.

 

Pramod Amthe, head of institutional equity research at InCred Capital, expects tractor volume weakness to start from the September quarter.

 

"For the full year, we see a 5-7 per cent drop in volumes versus double-digit growth in Q1. Underperformance of entry-level bikes versus the rest of two-wheelers, post GST cut, is expected to expand further," Amthe said.

 

Diversified players better placed

 

Despite near-term uncertainty, analysts believe companies with diversified businesses and stronger exposure to premium segments are better positioned to navigate volatility.

  

"Companies with diversified revenue streams and meaningful footholds in the EV transition are better placed to weather the near-term turbulence and emerge as outperformers over the medium to long term," Vincent said.

 

Axis Direct said any correction would provide an opportunity to accumulate quality companies with strong fundamentals and diversified earnings drivers. The brokerage prefers M&M, citing its leadership position in tractors, dominant domestic SUV franchise and diversified earnings profile.  Srimal said TVS Motor also remains favourably placed, supported by its balanced domestic and export portfolio. On Hero MotoCorp, Srimal said the company remains a key rural consumption play, backed by its leadership in commuter motorcycles and deep rural distribution network. However, near-term demand could remain sensitive to monsoon developments.

 

Meanwhile, Amthe said he prefers Eicher Motors and Bajaj Auto, citing strong premium segment growth and currency benefits, respectively.  ======================================================== 

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