Here is why BofA Securities is negative on India's two leading tractor manufacturers

BofA Securities has also maintained its underperform rating on Escorts Kubota and cut its price target to Rs 1,700 from Rs 1,8090 earlier. The revised price target is a seven percent downside from its current market price.

In its recent report, the World Meteorological Organisation mentioned that an El Nino event may develop after three consecutive years of an "unusually stubborn and protracted La Nina," which influenced temperature and rainfall patterns in different parts of the world.

The chances of El Nino developing, while low in the first half of the year, 15 percent in April-June, gradually increases to 35 percent in May-July, according to the report. Long-lead forecasts for June-August indicate a much higher, 55 percent change of El Nino developing but are subject to high uncertainty associated with predictions this time of the year, the so-called spring predictability barrier, it said.

However, BofA Securities has not fully factored in the impact of El Nino in its base estimates. It expects India's tractor industry to witness a 8-10 percent decline, in case the El Nino effects fully play out.

According to the brokerage, an uncertain farm outlook, downgrades in autos, and lack of meaningful catalysts are negative triggers for M&M. Therefore, it has cut M&M's Earnings per Share (EPS) estimate by 3 percent to factor in a mild tractor downcycle and a cut in utility vehicle volume estimates, as it believes the street is overestimating the earnings scale up in the UV business.

BoFA expects M&M's stock price to undergo a period of consolidation going forward.

Shares of Mahindra & Mahindra are off opening lows, currently trading little changed at Rs 1,150, while those of Escorts Kubota are down 1 percent to Rs 1,814.05.