Will El Niño spoil tractor party? M&M, Escorts Kubota, others in focus

Ahead of the monsoon season, analysts are turning cautious on the tractor sector after a sharp run-up in volumes, warning that the risk of El Niño and below-normal rainfall could moderate rural demand momentum in the coming quarters. Shares of rural-focused companies such as Mahindra & Mahindra, Escorts Kubota, VST Tillers Tractors, Action Construction Equipment, and Eicher Motors are expected to remain in focus.

 

The India Meteorological Department (IMD) has forecast the 2026 southwest monsoon at 92 per cent of the long-period average (LPA), with a model error margin of ±5 per cent, placing rainfall below the normal level. While weak La Niña-like conditions are transitioning toward ENSO-neutral conditions, IMD’s Monsoon Mission Climate Forecast System has also flagged the possibility of El Niño developing during the monsoon season — a weather event historically associated with uneven rainfall and pressure on farm incomes.

 

 

Despite emerging weather concerns, tractor demand has remained robust so far. According to JM Financial, industry tractor volumes rose around 21 per cent year-on-year in April 2026. M&M reported domestic tractor sales of about 46,400 units, up 20 per cent year-on-year, while Escorts Kubota posted domestic sales of nearly 10,400 units, reflecting 28 per cent growth.

 

Brokerages attributed the momentum to healthy reservoir levels, improved rural liquidity following GST cuts, and resilient farm sentiment.

El Niño risk may slow momentum, not derail it

Historically, El Niño or post-El Niño years have often led to either flat or declining tractor volumes, as a weak kharif monsoon reduces farm incomes and typically results in deferred capital expenditure decisions, including tractor purchases. Analysts believe that while El Niño risk may slow momentum, it is unlikely to derail it.

 

Subhash Gate, and Heet Chheda, analysts at Choice Institutional Equities, expect weather-related headwinds to keep tractor sector earnings growth muted, in low single digits over FY27–FY28, versus a relatively stronger high-teens growth base seen in FY26.

 

On the monsoon risk, Saurabh Jain, head of fundamental research at SMC Global Securities, said the historical record is instructive. “A single below-normal monsoon at 92 per cent of Long Period Average (LPA) has rarely been sufficient to break a tractor demand cycle — it typically takes two consecutive weak monsoons, or a severe single-year drought below 85 per cent of LPA, to cause meaningful multi-quarter volume contractions. At 92 per cent, with a ±5 per cent model error band, the 2026 monsoon remains a risk factor to monitor closely — not a confirmed demand destroyer. The second-stage IMD forecast due in late May will be the key data point before making a stronger directional call on tractor stocks for FY27,” said Jain.

 

Jain further believes that improved rural liquidity following the GST cut, healthy reservoir levels, and favourable farm sentiment appear to be the primary structural tailwinds, with pre-buying ahead of TREM Stage V-led price increases likely playing a relatively limited supplementary role.

Growth likely to normalise after strong FY26

Analysts also expect the current pace of growth to moderate after a strong FY26. “The strong start to April in the farm segment is unlikely to be sustained at the same pace. The industry grew tractor volumes around 22 per cent in FY26, but we expect a normalisation ahead, with most estimates pointing to 1–5 per cent CAGR over FY26–FY28. This moderation is a function of an unfavourable high base, compounded by weather-related uncertainty,” said the analysts at Choice.

 

They further expect replacement demand to remain a key structural support for the industry, underpinned by strong tractor sales during FY09–FY14, which are now entering renewal cycles. “With nearly 45 per cent of current tractor sales driven by replacements, this provides a meaningful cushion to overall volume stability over the next 2–3 years.”

 

At the same time, the analysts noted that agricultural income accounts for only a third of rural household income, with the rest spread across wages, other enterprises, and government/private jobs. This structural buffer, they believe, could help cushion the impact of a weak monsoon on overall rural consumption.

Are markets underestimating the risk?

The analysts warned that valuations in some tractor-linked stocks may not fully reflect the downside risks from an intensified El Niño cycle. The key concern, they said, is that if El Niño conditions intensify and lead to a sharper contraction in farm incomes, current valuations may prove somewhat optimistic. Most expectations, analysts believe, already factor in a normalisation in growth, but not a full cyclical downturn in rural demand.

 

“From a risk-reward standpoint, the profile appears asymmetric. Near-term upside is likely capped by weather and base effects, while downside risks could emerge if monsoon weakness materially impacts sentiment and discretionary farm investment. However, structural support from rising penetration levels and steady replacement demand should help limit deeper downside in the sector,” said the analysts at Choice.

M&M remains preferred pick

Among sectoral names, analysts continue to prefer Mahindra & Mahindra due to its diversified earnings profile. Jain said M&M’s dominant market share, export growth, and exposure to SUVs and EVs provide meaningful insulation against cyclical farm-sector weakness, while Eicher Motors remains a solid medium-term play.

 

Choice Institutional Equities also retained M&M as its top pick. “Mahindra & Mahindra remains our top pick, underpinned by a strong FY26 performance and a well-diversified business model that provides resilience against sector-wide tractor headwinds,” said the analysts at Choice.

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