Good Monsoon to drive 10-15% YoY earnings growth in agri-linked sectors in H2 FY26: smallcase Manager GoalFi
According to smallcase manager GoalFi, if the monsoon maintains above-average intensity and distribution across key agrarian regions, sectors such as tractors, agri-inputs, rural NBFCs, and consumer durables could see 10 - 15% earnings growth YoY in H2 FY26, supported by rural liquidity and demand recovery.
smallcase manager GoalFi believes that, as the expectation of a good monsoon continues and the impact of stable crop output and softening global prices becomes more evident, a 25-basis-point reduction in the repo rate to 5.75% is widely anticipated in the June 6th policy meeting. It highlights that a further cut to 5.50% by August is plausible if inflation remains below 4%. These rate cuts could provide a significant boost to rate-sensitive sectors such as housing, automobiles, and NBFCs. The expectation a good monsoon is already evident in food inflation. In April 2025, CPI inflation fell to 3.16%, while food inflation dropped to just 1.78%, the lowest level in several years.
GoalFi also believes that the broader equity market could benefit from increased visibility on consumption, lower inflation, and monetary easing—potentially driving Nifty 50 returns in the range of 6–8% over the next two quarters, led by midcaps and rate-sensitive sectors.
India has entered the 2025 monsoon season on a strong footing, with the India Meteorological Department (IMD) forecasting 106% of the Long Period Average (LPA) rainfall. This marks the second consecutive year of normal to above-normal monsoon, offering much-needed support to the agrarian economy, inflation control, and sectoral revival.
Robin Arya, smallcase Manager and Founder, GoalFi said, “India finds itself at a unique confluence in 2025, with the monsoon arriving early and delivering above-average rainfall, and a decisive electoral outcome setting the stage for policy continuity. This alignment offers a stabilizing base for inflation control, rural consumption, and capex-led growth. Sectoral rotation is underway, and with supportive monetary policy expected, rural-focused and rate-sensitive segments are poised to outperform in the quarters ahead.”
smallcase Manager GoalFi notes that an early onset over Kerala, eight days ahead of schedule has further raised expectations for timely sowing, rural income growth, and a rebound in consumption, especially in hinterland markets.
Agriculture & Rural Economy: Set for Revival
According to smallcase Manager GoalFi, the agriculture sector, which employs more than half of India’s 1.4 billion population and contributes ~ 16% to the GDP, is expected to benefit significantly from this early and widespread rainfall. Wheat procurement has already surpassed 25.6 million tonnes, marking a 24% increase over last year, while rabi crop output is up by over 3% year-on-year. Further boosting farmer sentiment, the government has announced MSP hikes for Kharif 2025-26, raising the paddy MSP to ?2,369 per quintal.
Tractor Sales & Input Demand Signal Rural Revival
It notes that Mahindra & Mahindra reported tractor sales of 38,914 units in May 2025, up from 35,237 in May 2024, while Escorts Kubota posted annual tractor sales of 115,554 units along with a 15.7% rise in profits. Industry leaders attribute this growth to early sowing driven by timely monsoons, strong water reservoir levels, higher MSPs that improve farm income visibility, and continued support from government schemes like PM-KISAN. This revival is also fueling demand for fertilizers, seeds, and irrigation equipment, with companies like UPL, PI Industries, and Dhanuka Agritech seeing increased order volumes.
Rural Consumption Gathers Pace
A normal monsoon has historically lifted rural incomes by 5–7%, triggering a ripple effect across consumption-linked sectors. FMCG majors like Dabur, Marico, Emami, and Hindustan Unilever are expected to see volume upticks in mass-market categories. Two-wheeler sales are also likely to recover, particularly in entry-level motorcycles and scooters. Rural NBFCs and microfinance lenders such as Mahindra Finance, Spandana, and L&T Finance anticipate improved credit demand and repayment cycles. Furthermore, the post-harvest festive seasons from August to October could accelerate discretionary spending across rural belts.
Smallcase Manager GoalFi believes an above-average rainfall will result in sharp acceleration in rural consumption, leading to a 6–8% uptick in sales for rural-focused FMCG, two-wheelers, and farm equipment segments over the next 6 months.
Warns that weather disruption may bring sectoral challenges
Smallcase Manager GoalFi notes that while the overall macro picture is optimistic, certain sectors face near-term pressures. Cement prices in South India have fallen by ?10–20 per bag due to construction disruptions and early rains, leading to potential temporary margin compression for companies like Ramco, Dalmia Bharat, and UltraTech Cement. Power consumption dropped 4.1% year-on-year in May 2025, reflecting cooler weather and subdued industrial activity. Sales of cooling products such as air conditioners, fans, and refrigerators have also declined due to lower seasonal demand. Meanwhile, coffee exports are under pressure as pre-monsoon rainfall deficits in key growing regions have negatively impacted arabica yields.
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