Cloud over monsoon: Agro, chemicals, tractor stocks on a slippery slope

Ever since the Indian Meteorological Department (IMD) in its April 22 forecast predicted a below-normal monsoon forecast for this season, a pal of gloom has set in on the share prices of several listed agro-based and tractor companies on the BSE, whose prospects are dependent on a good rain.

Investors have shunned their position in several fertiliser, seed producing and tractor manufacturing firms ever since the Met department predicted the four-month (June-September) south-west monsoon will be 93 percent of the Long Period Average (LPA). The reason for the downbeat sentiment is the fear that a rain failure will hit demand.

Since April 22, shares of most of these companies have been trading nearly 1 to 16 percent lower, underperforming the broad market sentiment as investors preferred to exercise caution by trimming their holdings.

 Cloud over monsoon: Agro, chemicals, tractor stocks on a slippery slope

Reuters

Leading the fall has been shares of Escorts, which plunged 16 percent from April 22 to trade at Rs 111.25 on May 27. Chemical manufactuing firm Atul Ltd dropped 11 percent to Rs 1,147.65, while automobile firm HMT declined 10.89 percent to Rs 39.70 and Kaveri Seed Company slumped nearly 10 percent to Rs 851.90 on BSE.

Others such as BASF India dropped 9.5 percent, Coromandel International 9.9 percent and agro chemicals major Bayer Crop Science 6.5 percent during the period.

Most of these stocks have even fared badly over the past five months of calendar year 2015. Agro chemicals firm Excel Crop Care has been the biggest loser, tumbling 26 percent, followed by Coromandel International which tumbled 25 percent and Atul Ltd was down 17 percent during the period.

"What we have seen in the last one month or so is that the weak monsoon forecast has put investors in a wait-and-watch mode. As a result of this, we have seen some correction in several of these monsoon-related counters. But with the onset of monsoon expected on time...and if there is revival in monsoon forecast going ahead, there would be recovery in these stocks along with optimism in the broader market sentiment," said Alex Mathew, head of research, Geojit BNP Paribas Financials.

However, the recent update by both government forecasting agency IMD and private forecaster Skymet Weather Services Pvt Ltd shows that monsoon will hit Indian shores on time, bringing some cheers to the market.

On the other hand, HSBC Global Research in its latest report has stated that a full El Niño effect is developing around the Pacific Rim, which raises the risk of sharply higher food prices in the second half of 2015, at a time when a low base effect and higher oil prices are likely to push up headline CPIs, especially in ASEAN and India.

"Even a small impact from a weaker monsoon in the first alternative scenario could have an oversized effect seeing that the low base effect will almost multiply any inflationary pressures," HSBC said in its report.

The report further suggests that the prospects for a weak monsoon could derail plans for further RBI easing of policy rates.

Despite concerns about a patchy monsoon this year, several stocks have shrugged off the worries to clock significant gains on the bourses. One such stock has been the United Phosphorus Ltd counter, which has surged nearly 55 percent in the last five montha and gained nearly 25 percent over the last one month.

Similarly, Dhanuka Agritech has bucked the weak sentiment and rose nearly 18 percent since the begining of 2015 and was up 9 percent since April 22. Others such as PI Industries, Rallis India and VST Tillers Tractors also generated buying interest.

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Updated Date: May 28, 2015 14:36:02 IST