- Rural NBFCs may face pressure from weaker farm incomes affecting repayments
- Banks risk higher agricultural NPAs due to severe rainfall shortfall impacts
- Tractor sales typically decline in years with below-normal rainfall and incomes
From rural NBFCs, banks, and fertiliser firms to tractor makers, building materials and FMCG companies, several sectors could come under pressure as drought risks and an emerging El Nino threaten farm incomes and the upcoming Rabi season.
The concern is no longer limited to crop output either, as a weak monsoon can squeeze rural cash flows, delay farm-input purchases and weaken demand for big-ticket agricultural products.
These are the sectors that could potentially take a hit:
NBFCs: Rural and semi-urban lenders could face pressure if weaker farm incomes affect borrowers' repayment capacity. L&T Finance has around 40% rural exposure and a high unsecured mix, while M&M Financial Services has a large rural and semi-urban customer base. CreditAccess Grameen and Fusion Finance are also heavily exposed to microfinance and rural borrowers, while around 71% of HDB Financial Services' branches are in Tier-4 and smaller cities.
Banks: A severe rainfall shortfall can push agricultural stress and potentially increase agri NPAs. Agriculture accounts for about 13% of system loans, with higher exposure for lenders such as IndusInd Bank and Federal Bank compared with larger private banks and SBI.
Tractors: Tractor demand is closely linked to the monsoon and farm incomes. In five years of sub-normal rainfall over the past 15 years, that is 2012, 2014, 2015, 2018 and 2023, tractor volumes declined year-on-year in four years.
Building materials: Weak rainfall can affect irrigation-related spending and demand for PVC pipes. Supreme Industries, with around 20-30% agricultural exposure, could therefore remain in focus.
Fertilisers: Lower crop acreage and weaker farm economics could reduce fertiliser offtake. Coromandel International and Chambal Fertilisers are among the stocks to watch.
FMCG: A prolonged rural income squeeze could delay the recovery in rural consumption, as compared to urban consumption, putting FMCG demand under pressure.
Why Is Rabi At Risk?
As of latest data, India's southwest monsoon ended with rainfall 12% below normal, while uneven distribution left several farming regions under stress and reservoirs inadequately replenished for the Rabi season. Maharashtra, one of the most affected states, has declared drought across 265 of its 358 talukas, or about 74% of the state, while Karnataka has also declared more than 100 taluks drought-hit amid widespread rainfall deficits.
Agriculture Secretary Atish Chandra has warned that the Rabi season could be particularly difficult for rainfed regions and that foodgrain production may be affected as El Nino emerges as a key risk. The government has consequently set a lower 2026-27 foodgrain production target of 373.93 million tonnes, with a Rabi target of 177.72 million tonnes.
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