Agri stocks rebound up to 48% as good rains revive hopes of better demand

While monsoon activity picked up momentum over the past 8-10 days and continue to hold good so far, nervousness among stock market investors seemed to have faded a bit, with broad market recovery in equities further spreading cheers to the several listed monsoon-bound agriculture-related stocks.These stocks cutting across fertiliser, seed producing and tractor manufacturing firms mostly depend on the fortunes of the monsoon and it is spread across the country during the traditional four months period between June andSeptember.

The current turnaround in these shares has come after a gap of one-and-a-half months time when the market in late April hammered the sector post the initial weather bureau forecast of a weak monsoon for the second straight year.But with things improving on the monsoon front over the past one week or so and rainfall gathering pace in several parts of the country, investors seem to be restructuring their portfolio and have gone long on several agriculture-backed stocks.

In the past nine sessions (between June 11-24) when the benchmark Sensex gained 5.1 percent, several agriculture-related stocks, too, sprung back into action, surging up to 48 percent during the period.Among the gainers, Nagarjuna Agrichem topped the chart, surging 48 percent while Bharat Rasayan followed with robust gains of 22 percent during the period under review.HMT shot up 16.6 percent, Insecticides India 16 percent, Escorts nearly 15 percent and BASF India 13.5 percent.Others such as Rallis India, Monsanto India, M&M, Hindustan Unilever, Coromandel International, Dhanuka Agritech, UPL and Bayer Crop Sciences jumped 5-13 percent.“If there is a sustained improvement in rainfall going ahead, demand for fertilisers should pick up and help most of these companies to come out with good numbers. We saw most of the fertiliser companies come out with disappointing earnings numbers in the last quarter (Q4), and if the monsoon worries turn out to be true and the season ends below estimates, itwill have a serious impact on the overall markets, including the rainfall-dependent agri stocks,” said Alex Mathew, head research at Geojit BNP Paribas Financial.On April 22, when the country’s official weather bureau, the Indian Meteorological Department (IMD), in its forecast predicted a below-normal monsoon for the current season, a pal of gloom set in on the share prices of several listed agri-based and tractor companies on the BSE.Fearing a lower-than-expected rainfall for the second consecutive year, investors began dumping monsoon-dependent stocks amid concerns of falling demand and impact on the overall earnings.As a result, between April 22 and June 2, several theseshares fell 2-16 percent, underperforming the key benchmark Sensex which eased 2.5 percent during the period.Among the biggest laggard was tractor manufacturing firm Escorts, which tanked 16 percent as concerns of a tepid demand for tractors during the rest of the year prompted investors to trim their holdings.HMT, which also has a tractor division, tumbled 11 percent, while pesticide firm BASF India plunged 9 percent, Bayer Crop Sciences 7 percent and Kaveri Seed Company 5.6 percent.Further, Coromandel International, Rallis India, Monsanto India and Atul Ltd also fell 1-8 percent.Even as the monsoon has been making rapid strides in reaching most part of the country of late, weather bureau, including the overseas forecasters, are still sceptic about the performance in the rest of the months, and see El Nino effect coming into play at later stages.“Although, these stocks have run-up sharply in recent sessions, their near-to-medium term performance will depen on how the monsoon pans out in the next three months,” said Mathew of Geojit BNP Paribas.