Rajasthan, Madhya Pradesh and Chhattisgarh—the three states that have announced farm loan waivers recently—account for about 25 per cent of tractor demand in India. The principal political parties in the country are moving towards farm-loan waivers as a populist measure for agrarian distress, according to the Credit Suisse report.

Last year, Maharashtra, Uttar Pradesh and Punjab had announced farm loan waivers while Karnataka announced a waiver earlier this year.

“We remain constructive on the tractor names—M&M, Escorts... we don’t think the cycle has peaked yet and valuations for both the tractor names are very attractive at 10 times FY19,” said Credit Suisse.

The financial services firm said the nationwide farm-loan waiver, which was announced in 2008, combined with other stimulus measures, had boosted tractor demand growth in FY09 and FY10.

The large ones were implemented in Andhra Pradesh, Uttar Pradesh and Maharashtra, and all of them have boosted tractor demands in the particular year when implemented, said Credit Suisse.

The financial services firm said the other concern is about the impact on agricultural credit post these farm loan waivers but past instances do not suggest any meaningful change in trends.

Credit Suisse has an outperform rating on Escorts with a target price of Rs 1,050. The firm believes that Escorts is well placed to benefit from volume growth in the tractor industry as well as pick up in construction equipment and railways demand.

Credit Suisse’s outperform rating on Mahindra & Mahindra with a target price of Rs 1,020 reflects expectations that M&M will benefit from growth in utility vehicles volumes as well as tractors.