Tractors carve fresh growth furrows across FY26 auto sector landscape

Farm wheels spin past autos powered by strong monsoon, rising MSPs, and M&M's market grip

Tractors have been the best-performing segment in the automotive (auto) space in recent months and are expected to outpace the broader auto sector in 2025–26 (FY26). While volumes in 2024–25 (FY25) slipped slightly year-on-year (Y-o-Y) to 883,000 units, the sector is likely to clock high single-digit growth this financial year. Most other auto segments are projected to end FY26 with marginal gains — or even a decline — compared to FY25.

 

Among listed stocks, Mahindra & Mahindra (M&M) has outperformed the Nifty Auto index, while Escorts Kubota and VST Tillers Tractors have struggled to keep pace with their peers. Given the strong volume outlook and multiple growth drivers, returns from these counters over the next year could surprise on the upside.

 

Recent volume trends, upbeat management commentary, and a favourable demand environment are the key triggers for tractor stocks. M&M’s management remains optimistic, citing positive farm-sector indicators: an early and above-normal southwest monsoon, higher minimum support prices for paddy and other kharif crops, healthy reservoir levels, solid foodgrain output, and new government schemes aimed at improving farm productivity. The company expects high single-digit sector-wide growth in FY26, with its performance lifted by a favourable regional mix, particularly in strong markets across South and West India. 

 

Escorts also expects the sector to grow in the mid- to high-single-digit range and aims to cross the 1-million-unit mark for the first time in FY26. While its regional mix remains a challenge, the company is working to address product gaps across segments and aims to stay ahead of the industry’s export growth curve, targeting a 20–25 per cent increase in overseas sales this year. 

 

Volume trends among listed majors remain a key catalyst. The sector, led by M&M’s market share gains, has grown at a high single-digit pace Y-o-Y in April and May. In May alone, domestic tractor volumes rose 8 per cent Y-o-Y and 6 per cent month-on-month. M&M and VST Tillers reported strong Y-o-Y growth of 10 per cent and 23 per cent, respectively, while Escorts saw a 2 per cent decline.

 

Brokerages remain optimistic about the sector’s prospects. Says analyst Shridhar Kallani of Axis Securities, “The timely onset of the monsoon has lifted rural sentiment, setting the stage for the scheduled commencement of kharif crop sowing. Looking ahead in FY26, we expect this positive trend to continue, supported by an above-normal monsoon forecast, adequate reservoir levels, and improved liquidity.”

 

While the outlook for M&M remains strong, analysts are less confident about Escorts, which they believe will continue to lose share in the near term, and are cautious on VST Tillers.

 

Research analyst Kumar Rakesh of BNP Paribas highlights M&M’s consistent delivery across both product and profitability metrics, calling it a strong earnings story. The company’s recent product launches have helped it gain share in tractors. With an improved mix, better scale, and fewer loss-making overseas units, the brokerage expects stronger profitability in the farm equipment business. It has a sum-of-the-parts target price of ₹3,600 per share.

 

While demand conditions are improving, research analyst Aniket Mhatre of Motilal Oswal warns that Escorts’ market share erosion, driven by regional imbalances, is likely to persist through FY26. The outlook for its construction equipment business also remains weak following steep price hikes introduced to comply with new emission norms. Given these factors, the brokerage considers the stock fairly valued, with a target price of ₹3,227.

 

BOB Capital Markets has cut its FY26 and 2026-27 earnings per share estimates for VST Tillers by 6 per cent and 1 per cent, respectively, citing competitive pressures, margin stress, and cost inflation. Analyst Milind Raginwar of the brokerage argues that valuations remain disconnected from earnings. Despite the company’s focus on high-end farm equipment, contributions from non-farm segments, and regional diversification, overall performance has been underwhelming, he observes.