Agri economics in trouble; rural themes to feel pain: Emkay

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26 Aug, 2025 12:21

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Moneycontrol Bureau

Agricultural sector economics is running into trouble because of recent unseasonal rains as well as reduced policy support and soft global prices, says brokerage house Emkay Global Financial Services. The brokerage feels declining cash flows for the sector will have significant impact on rural themes including consumer goods, autos, agri inputs and PSU banks.

"Prices of several items have fallen reflecting excess supplies, thereby exposing the farm sector to risk of declining cash flows. Additionally, decline in global prices of agriculture commodities will exert downward pressure on realization for farm sector in India," says the Emkay note, adding that the decline in value of produce and profitability for the agri sector is likely to play out with a lag on agri input sectors-seeds, fertilizers and agro chemicals.

According to estimates by the Agriculture Ministry, unseasonal rains and hailstorms during this month have damaged rabi (winter-sown) crops in 106.73 lakh hectares of area across 14 states.

Given its compulsion to adhere to fiscal discipline, the government may not be able to intervene through support prices, Emkay feels.

While the downtrend in food prices should be beneficial for consumption spending and by extension, for FMCG companies, this will be largely neutralized by the low profitability in the agricultural sector.

"Companies with revenues and product portfolios skewed towards urban markets have will see the first signs of revival, whenever it happens, while partly rebalancing the rural underperformance. We prefer urban plays that can enhance margins; Britannia, Colgate, GSK Consumer, Nestle and Godrej Consumer," says the Emkay note.

The brokerage sees Hero Motocorp, TVS Motor and M&M as facing the brunt of growth moderation, as they have significant rural centric portfolio.