Mumbai: India’s tractor industry may recover before other sectors impacted by the pandemic-led disruption, given the government’s focus on helping rural economies.
Prime Minister Narendra Modi’s administration will spend 1.5 trillion rupees ($20 billion) to help its farmers and fishermen boost exports and profits as the nation gradually reopens from the world’s biggest lockdown. While India’s economy is set for its first annual contraction in four decades, the government forecasts agriculture output will grow faster than expected, emerging as the lone bright spot.
Moves to boost rural employment will eventually lead to lesser labor availability, driving higher farm mechanisation and tractor sales, Kapil Singh and Siddhartha Bera, analysts at Nomura Financial Advisory and Securities (India) Pvt, wrote in a note. The broker also said “rural incomes should bounce back quickly” as lockdowns are lifted and government initiatives take effect.
Shares of Mahindra & Mahindra Ltd., the nation’s largest tractor maker by volume, have gained about 38% since end-March after two straight months of decline. It the best performer on the benchmark S&P BSE Sensex in that span. Nomura raised its price target for the stock 20% to 501 rupees, maintaining a buy rating.
“While, in the near-term, labor scarcity may not be evident due to the migration of workers from urban to rural areas, we expect tractor demand to benefit as the situation normalizes,” the Nomura analysts said.
The weather office in April predicted that this year’s monsoon, which waters more than half of India’s farmland, is likely to be in line with the long-term average.
While tractor manufacturers remain cautious on their volume guidance for the current fiscal year, they expect boosts from strong winter crop output, good sowing of summer crops and high reservoir levels, Haitong Securities India Pvt wrote in a note to clients.
“Plants and dealerships have also resumed partially and are seeing sales inquiries returning” gradually, Haitong analysts Aniket Mhatre and Rakesh Jain said. – Bloomberg
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