After a prolonged slowdown of around six quarters, the green shoots of revival have started to become visible, especially in the rural heartland.
After a prolonged slowdown of around six quarters, the green shoots of revival have started to become visible, especially in the rural heartland. Tractor sales – an indicator of rural demand – is expected to pick up momentum after almost a year of poor demand, brokerage firm Motilal Oswal said in a research note. An increase in inflation is expected to bode well for the rural market. Moreover, the central government spending on the sector has increased by 21 per cent in the first seven months of the ongoing fiscal. These factors, coupled with strong water reservoir levels and pick-up in Rabi crop sowing activity indicates a positive market growth.
Before the impact on the back of several headwinds in the second half of FY19, the rural market was growing at a fast pace “driven by expansion in the distribution network and increasing finance penetration, resulting in easy product accessibility for the rural customer,” Motilal Oswal said. Meanwhile, the government has released the Final Estimates of 2018-19 and 1st Advance Estimates of 2019-20 of the area and production of various horticulture crops. It is expected that the total horticulture production in the current fiscal will rise by 0.84 per cent, compared to FY19. Also, vegetable production is also expected to surge in the current year. Onion production is expected to increase by 7.17 per cent on-year, while potato and tomato productions are expected to increase by 3.49 per cent and 1.68 per cent on-year respectively, according to the Department of Agriculture, Cooperation and Farmers Welfare.
Apart from optimistic expectations of increased production of horticulture crops, the tractor volumes are expected to recover from the 11 per cent decline in the April-December period driven by favourable farm economics and positive sentiments in the ongoing Rabi season. The brokerage firm further expected the volume recovery to reflect from March 2020 and has estimated 8-10 per cent volume growth in FY21 for the tractor industry. “We believe that tractors are best placed to benefit from the rural recovery on high correlation with farm economics,” the note added.