El Nino, A Threat To Indian Agri Sector: Motilal Oswal

Motilal Oswal Report

India is an agrarian country with the agriculture sector accounting for ~58% of the population and ~14% of the gross domestic product. Events such as El Nino and La Nina adversely impact the agriculture scenario, and are direct threats to the country’s economy. In this report, we highlight the possibility of an El Nino event in FY24 and its possible impact on agriculture and related companies.

• Historically, El Nino events have resulted in below normal monsoon or even drought in India. Agencies across the globe are suggesting a possible (45-60% probability) occurrence of El Nino in the later part of CY23.

• In the past, this has led to a stressed Indian agriculture scenario in the form of lower crop production (mainly affecting kharif crops) and surge in crop prices, thereby adversely impacting farm profitability.

• Further, due to lower farm profitability, consumer companies with higher rural salience also witness muted growth during these events.

• Since agrochemical and fertiliser companies have a strong correlation with monsoon, they reporting muted/lower revenue growth during such events. A possible occurrence of El Nino this year could lead to history getting repeated.

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