El Nino Left A Scare On Indian Agri Sector; La Nina Possibility To Lift Hope: Motilal Oswal

Motilal Oswal Report

The prediction of La Nina (above normal monsoon) in FY25 offers hope for the revival in the agricultural income and consequently the rural economy, following the onset of El Nino in FY24, as cautioned in our March 2023 report.

In this report, we have highlighted the possibility of a La Nina event in FY25 and its positive impact on agriculture and related companies. We also discussed the damage done by the occurrence of El Nino.

IMD has indicated weakening of El Nino conditions and further highlighted the likely development of La Niña conditions during the second half of the monsoon season. The 2024 southwest monsoon is expected to be 106% of long period average.

Historically, La Niña has bolstered India's Kharif and Rabi production through enhanced rainfall and rising reservoir levels, leading to notable increases in production. Consequently, leading to better farm profitability

Improved monsoon forecasts typically drive higher revenue and increased volumes in the agrochemical and fertilizer business. La Nina events historically correlate with better revenue growth during those years. Also, consumer companies with higher rural salience witnessed a healthy growth during this period.

El Nino manifested in FY24, resulting in below-normal monsoon (down 36% of LPA) conditions, low reservoir levels (at 35% of total capacity), decreased crop production, and a rise in food inflation.

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