Automobile companies announced their wholesale volume numbers for February and tractors have been the star performers for the month. This segment’s wholesale volumes as reported by Mahindra & Mahindra Ltd (M&M) and Escorts Kubota Ltd were up by 26-28% year-on-year (y-o-y), ahead of analysts’ estimates. Factors that aided this growth include a record rabi crop acreage, high crop prices and improving sentiments in the rural areas.
What’s more, with the budget announcements in favour of the rural and agricultural sector, tractor volumes are expected to maintain the momentum. However, there is a fresh risk of the possibility of 2023 being an El Niño year. El Niño typically creates hotter summers and weaker monsoon and if the risk plays out, it would be detrimental to rural demand. Eventually, this could also act as a sentiment dampener for investors in auto stocks. Not just tractors, entry level passenger vehicles (PV) and two-wheelers (2W) would also bear the brunt.
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