El Nino years are marked by an unusual warming of the central and eastern Pacific, which alters atmospheric circulation and weakens monsoon winds over the Indian subcontinent. The National Oceanic and Atmospheric Administration (NOAA)’s Climate Prediction Center has recently predicted 50% chance of a “strong” or “very strong” El Niño in the coming months.
For context, even the weak El Nino year of 2009 saw a sharp drop in India’s rainfall to 78.2% of a long-period average, the lowest in 37 years. Hence, the expected strong El Nino conditions are raising concerns.
El Nino’s impact on India
Below-normal rainfall could lead to smaller harvests of crops including rice, cotton and soybean, while also weighing on winter crops like wheat and rapeseed due to lower soil moisture. Additionally, it may prompt the government to restrict exports of some farm goods, as it did during the 2023 El Nino year. It could also force India to increase imports of edible oils, particularly palm oil and soyoil.
India remains structurally sensitive to monsoons despite the declining share of agriculture in GDP to approximately 15–16% from 30% earlier, said Uttam Kumar Srimal, Senior Research Analyst at Axis Securities. A below-normal monsoon still has a disproportionate impact on rural sentiment, food inflation, and consumption cycles, which in turn influences broader market performance, he added.
What impact El Nino can have on Indian stock market
The Indian stock market has already seen sharp declines in 2026 as multiple headwinds including AI worries, US-Iran war and others dampened sentiment. Sensex and Nifty are down around 8% this year so far. Now El Nino adds to investor worries on Dalal Street.Historically, El Niño years have been associated with weaker rainfall, lower agricultural output, elevated food inflation, and rural stress, often leading to moderation in GDP growth and negative market sentiment, Uttam Kumar Srimal noted. He however added that the current rural economy is structurally more resilient compared to the past. Rural income is no longer purely farm-dependent, with non-farm sources now contributing to approximately 40–50% of rural income, including construction, services, and government spending. This diversification provides a meaningful cushion against monsoon volatility, though it does not eliminate the impact entirely, he said.
“In the current context, even if monsoon variability emerges, the impact is expected to be more nuanced rather than broad-based, with sectoral divergences becoming more important,” according to the analyst.
However, if 2026 shapes up as an El Niño year, the market will worry less about rainfall headlines and more about the inflation-rate-earnings chain reaction, according to Harshal Dasani, Business Head at INVasset PMS. “In market terms, [El Nino] raises the risk of stickier food inflation, fewer rate cuts, firmer bond yields and earnings downgrades in rural-facing pockets rather than an outright market collapse. A positive IOD later in the season could still cushion the damage, so this is a risk-premium story, not yet a disaster call,” he said.
Which sectors can feel the heat?
According to Srimal, a weak or uneven monsoon could weigh on rural-linked discretionary and credit segments, including two-wheelers and tractors, rural-focused FMCG companies, rural NBFCs and microfinance institutions, agrochemicals as well as hydropower. Two-wheelers and tractors may see an impact on demand as it is closely tied to farm income and rural cash flows. Hero MotoCorp, Bajaj Auto, TVS Motor and Royal Enfield-maker Eicher Motors are the key listed two-wheeler makers.
For the FMCG companies focussed on rural areas like ITC, Dabur, Nestle and others, volume growth may soften, especially in staples and mass categories. Meanwhile, asset quality risks may rise for rural non banking financial companies (NBFC) due to stressed borrower cash flows. Lower acreage and delayed sowing can impact demand for agrochemical-makers like UPL, PI Industries, Bayer CropScience and Sumitomo Chemical, while subdued reservoir levels may affect hydropower generation output.
However, the analyst feels that the downside may be less severe due to income diversification, government rural spending, and better irrigation coverage.
Which sectors will remain resilient?
While El Nino conditions will impact several sectors, some pockets will likely remain resilient while some in turn will benefit. Soaring temperatures will lead to higher demand for thermal power, as well as cooling products like air conditioners and fans, Srimal highlighted. Notably, the shares of Adani Power, Tata Power, Voltas, Blue Star and others have surged recently amid the soaring temperatures.
He further noted that structural push towards water efficiency and farm productivity amid weak monsoons will boost demand for irrigation and pipes. Companies associated with seeds, water management and agri-tech solutions will also likely benefit.
According to Dasani, export defensives like IT and pharma, telecom, urban-facing financials and utilities or transmission businesses with lower dependence on monsoon-linked demand are likely to remain resilient to the El Nino conditions. Some of the key players in these sectors include Infosys, TCS, HCL Technologies, Sun Pharma, Lupin, Bharti Airtel, and others.
“While monsoon remains a key macro variable for markets, its impact today is more sector-specific rather than systemic. A weak monsoon may still lead to short-term volatility in rural-facing sectors, upward pressure on food inflation (impacting RBI stance and consumption), and rotation toward defensive and urban-driven themes,” Srimal from Axis Securities said, adding that the broader market is less vulnerable than in past decades, with resilience coming from economic diversification and policy support.
The broader market message is simple – El Niño usually shifts leadership away from rural beta and toward defensives, quality balance sheets and businesses with limited monsoon sensitivity, Dasani highlighted.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)