A bleak outlook

Farmers and monsoon are back in the news in India. And, the prognosis is not cheerful. First, a farmer from Rajasthan attend­ing an AAP rally in Delhi commits suicide because, he says, his crops had failed and the resulting finan­cial distress was too much to bear. This becomes a political issue, lead­ing to a demand for the waiver of farm loans. Then, the Indian Meteo­rological Department (1MD) predicts that there is only 28 per cent proba­bility that India will receive normal rains during the June-September sea­son. Here, normal rain is defined as rainfall measuring 96-104 per cent of the long-term average. Most of the farmers in the country continue to depend upon the monsoon to irri­gate, their land and, hence, deficient rainfall is certainly not good news.

Of course, there would be a revi­sion of this forecast in the month of June. But, news of below-average rain­fall predictions and farmer suicides is not good for the fertiliser companies. This is the second year in a row that India is expected to receive less rain. Last year too, there were drought-like conditions prevailing in many parts of the country and many farmers had cut short their lives, as they could not meet financial obligations. What
added to the farmers’ woes were the unseasonal rains in various parts of the country in 2015, which wreaked havoc and piled on more misery on the hapless poor.

These developments are making investors nervous about investing in fertiliser stocks. The sector, which had caught the fancy of investors last year, is now losing steam. Most fertil­iser companies are now in the red, in contrast to last year, when most were flourishing, triggering great demand for their stock among investors.

Some of the major losers in the fer­tiliser pack in 2015 are GSFC (which is down by 24 per cent), Tuticorn

 

Alkalies (also down by 24 per cent), SPIC (20 per cent) and National Fertil­isers (19 per cent). Mangalore Chemi­cals, which is in the news as the scene of a takeover battle, is also down by 4 per cent. On an average, the sector has been on the decline to the extent of 10 per cent in their market cap.

Bad sentiment

During the same period in 2014, ferti­liser stocks were on the way up. Many thought that the new government would introduce new reforms and also that the fertiliser subsidy issue would be tackled. There was even talk of a second green revolution, which would have resulted in more demand for fertilizers, which in turn would have made sentiments for fertiliser stocks better. But instead of getting better, the sentiment has now turned bad. What is worse is that there are no signs that it is likely to improve in the near future. The investors who have moved into fertiliser stocks, hoping to make quick money, may need to wait a little longer before they achieve what they wanted.

In fact, fertiliser stocks have not been commanding respect from investors for a long time, as this sec­tor is highly regulated by the gov­ernment. Not many research houses even tracked this sector. Also, insti­tutional investors’ presence in this sector was minimal. Today, most of the fertiliser stocks are either small- cap or mid-cap, despite India being one of the largest producers of food grains in the world.

Investors could, of course, pray for the rain gods to smile on India and that there be no El Nino. In which case, the sentiment for fertiliser com­panies could improve. But, even then, it’s unlikely that they would outper­form the broader market. The best thing is to stay away from this sec­tor, and hope that the rain gods look kindly on India, which would do a world of good not only to the ferti­liser companies but also to India’s economy as a whole, as such an improvement would keep the food inflation in check and improve the rural economy’s purchasing power.

♦ SUNIL DAMANIA sunil.damania@businessindiagroup.com

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