Achhe Din Ahead For Fertiliser Sector?

May 18, 2017 | 10:41 AM IST

Recently the Meteorological Department predicted that this year we will have a good monsoon. No sooner this news came, the analysts and market gurus started to predict how the market will unfold in the next few weeks. Good monsoons are always good for the market. It gives a decisive push to the sectors which are fairly dependent on monsoons like food, chemicals and fertilisers.

As Indian economy is heavily dependent on the agrarian produce it makes a world of a difference of how monsoon behaves. A good monsoon simply means good harvest which subsequently boosts the economy. In this scheme of things, fertilisers will play a pivotal role as the monsoon (Predicted) will perfectly coincide with the government's fertiliser policy.

The Monsoon-Fertiliser Connection

Monsoon is just one of the reasons why fertiliser stocks are going north at this point. One of the major reasons is that the government has rolled out a fertiliser policy which has provisions of subsidies for the domestic manufacturers.

At present, India is the biggest consumer of urea, the key component of fertilisers. The policy aims to the reduce the import of fertilisers components and make India self-sufficient. In order to do that, the ministry of fertiliser is initiating a plan to revive old fertiliser plants. These are some of the reasons which have brightened the prospects of the fertiliser companies.

Another thing which comes as a bonus is that during monsoon farmers don't stock fertilisers. They buy it according to their requirement, which keeps varying as per the nature of the monsoon. If the monsoon prediction is positive it directly reflects on the sale of the fertilisers.

Taking stock of these developments, it will be safe to say that these provisions will protect the interest of the domestic producers. On top of that, the early arrival of monsoon only makes it an opportune time for the business to blossom.

A Win-Win Situation

As the government has created a level playing field for the chemical and fertiliser producers, it is only natural that these stocks will start their upward move. Most of the fertiliser stocks like Chambal Fertilisers, GNFC and GSFC touched their 52-week high after the monsoon announcement was made while some other fertiliser stocks were relatively high. But the question that investors need to ask here is - is this a momentary uptrend or is it a sustainable, long-term growth?

Here's a catch, the market sentiment keeps swinging from one end to other at an exponential rate. When summers come dairies, white goods (especially AC and Coolers) stocks surge. At the time of Diwali paints stocks go up. Naturally, investors would like to know whether fertiliser stock have long-term growth potential or they will pass out as soon as the monsoon ends.

Things That Can Make A Difference

As we have already mentioned that it's not just a seasonal boom as there is a lot going in this sector which might make it a long-term investment prospect.

Government's initiative to empower domestic producers is one of the biggest reasons investors are bullish about this sector. Not just that, the ministry is contemplating the options of extending a helping hand to the loss-making fertiliser companies like Madras Fertilizers Ltd and Fertilisers & Chemicals Travancore Ltd. Also, it is planning to restart some of the idle plants owned by The Fertilizers Corp. of India and Hindustan Fertiliser Corp. The government's intervention always works in the favour of the sector.

On the global front, the demand for nitrogen fertilisers is expected to rise up to 5.6% to 119.4 million tonnes in 4 years. It's a window of opportunity the government wants to capitalise on. And it is doing it by bringing the domestic players up to the speed. All in all, it seems that the upsurge of the fertilisers will last longer than the seasonal boom.

Disclaimer - The stocks mentioned in the above article are only to illustrate the point in the context of the article. In no way, readers should look at these stocks as recommendations of Niveza. Stock recommendations are sent only to the registered customers via official channels i.e. SMS and Email.

 

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