Good Monsoon May Drive 10–15% Earnings Growth in Agri-Linked Sectors in H2 FY26: Report

A normal to above-normal monsoon forecast for 2025 is expected to bring much-needed optimism to India’s agriculture-driven industries. According to a new report by domestic brokerage firm Anand Rathi, a favorable southwest monsoon could lead to a 10–15% earnings growth in agri-linked sectors in the second half of FY26, driven by higher rural demand, better crop yields, and improved cash flows across the farming ecosystem.

A Rain of Hope for the Rural Economy

The Indian Meteorological Department (IMD) has projected a “normal” monsoon for the June–September 2025 season, boosting investor sentiment in sectors that hinge on agricultural performance, such as farm inputs, FMCG (rural-focused), tractors, agrochemicals, and rural financing.

“The monsoon is more than just rain—it's a primary driver of India’s rural economy,” said Kavita Bansal, Senior Economist at Anand Rathi. “With over 50% of the net sown area still dependent on rainfall, a good monsoon can significantly influence rural incomes and consumer behavior, which ultimately drives earnings across agri-linked sectors.”

Sectoral Breakdown: From Tractors to Fertilizers

The report highlighted five key segments that are likely to benefit most:

1. Farm Equipment and Tractors

A revival in Kharif sowing activity, coupled with improved farm realizations, is expected to drive volume growth for tractor manufacturers like Mahindra & Mahindra, Escorts Kubota, and TAFE. Analysts project a 12–14% increase in tractor sales in H2 FY26 over the same period in FY25.

“Tractor volumes have shown a historical correlation with monsoon performance. The upcoming season could be the best in three years,” noted Rishi Vardhan, Auto Analyst at Prabhudas Lilladher.

2. Agrochemical and Fertilizer Firms

With enhanced sowing area and pest risks rising during the monsoon, agrochemical companies are expected to see a demand surge. Firms like UPL, PI Industries, and Coromandel International may register double-digit revenue growth.

“We anticipate a robust demand cycle in agro-inputs, especially herbicides and fertilizers, with a growth range of 10–20%,” the report stated.

3. Rural FMCG and Consumer Durables

Companies like Hindustan Unilever, Dabur, and Godrej Consumer are banking on a rural rebound. These companies have witnessed stagnation in rural volumes over the last two fiscal years due to erratic rainfall and inflationary pressures.

“A good monsoon will boost disposable income in rural India, enhancing demand for essentials and discretionary products,” said Neha Suri, FMCG analyst at Kotak Institutional Equities.

4. Rural Lending and NBFCs

Microfinance and rural-focused NBFCs such as Mahindra Finance, Spandana Sphoorty, and CreditAccess Grameen are expected to witness lower delinquencies and better credit demand.

“Loan recoveries in rural India improve significantly post a good harvest season. We see strong asset quality improvement in the second half,” said Ashutosh Khurana, NBFC Sector Head, ICRA Ratings.

5. Irrigation and Infrastructure Suppliers

Companies supplying irrigation equipment, seeds, and rural infrastructure components are also poised to benefit. Government support schemes like PM-KISAN and subsidized irrigation programs could further amplify the sector’s performance.

Market Context: Recovering After a Challenging FY25

FY25 has been a year of uncertainty for agri-linked sectors due to erratic rainfall, unseasonal floods in parts of eastern India, and rising input costs. Most rural consumption indices remained tepid, and companies with rural exposure saw sluggish earnings.

However, the signs of revival are becoming clearer in 2025. Rural wage growth is picking up, food inflation is stabilizing, and sowing intentions are reportedly strong among farming communities in states like Maharashtra, Punjab, and Uttar Pradesh.

Earnings Estimates and Market Implications

According to the Anand Rathi report, agri-linked stocks could see a re-rating in H2 FY26. The brokerage estimates an average 10–15% earnings per share (EPS) growth for major players in the sectors identified, assuming monsoon rainfall remains above 96% of the long-period average.

“The macro cues are favorable: good monsoon, low rural inflation, and government support. Earnings revisions are likely in Q3 and Q4 FY26,” the report concluded.

This could translate into stronger valuations and increased investor appetite for rural plays. Already, mutual funds are reportedly increasing their exposure to FMCG rural plays and tractor makers, banking on the monsoon boost.

Risks and Uncertainties

Despite the optimism, analysts caution that the monsoon's spatial and temporal distribution will be critical. Heavy rainfall in some regions and deficient rain in others can skew agricultural outcomes.

Additionally, global headwinds—such as volatility in commodity prices or El Niño/La Niña surprises—could still impact sentiment. Regulatory hurdles and delays in farm input subsidies may also pose challenges to rural profitability.

Investor Outlook: Rural India at the Core of Growth

Investors looking at thematic exposure may find the current period opportune for tapping into agri-allied stocks. The rural revival narrative is backed not just by weather forecasts but also by structural government support and pent-up demand post two uneven years.

“A bottom-up approach is best. Focus on quality players with strong distribution in rural India and a history of weather-resilient performance,” advised Rajiv Mehrotra, Fund Manager at ICICI Prudential Mutual Fund.

A promising monsoon in 2025 could mark a turning point for India’s agri-dependent sectors, triggering a broad-based earnings revival in the second half of FY26. While rainfall patterns remain the ultimate arbiter, the signs point to a fertile ground for growth—both in fields and financial statements.