What El Nino fear! Agri stocks return upto 70% since March 

[Editor: Among the Agriculture related stocks, Insecticides India Ltd (Rs.275.65) have not much rallied from its 52-week low price of Rs.203 made on 8 November, 2013. Hence, there is a chance for more appreciation from this scrip in the coming days. I am looking at a target of Rs.400 plus in the medium term]

NEW DELH, 30 April, 2014: Shunning growing concerns over El Nino, most agri stocks have seen a massive rally since March this year.

If we look at the performance of top-five agri stocks, a big chunk of the upmove can be seen from the period starting March, with Advanta gaining over 70 per cent and UPL rallying over 50 per cent in the same period (refer to table below).

Considering that the Indian Meteorological Department (IMD) had formally accepted the possibility of El Nino and a below-normal monsoon just last week, agricultural stocks should have witnessed some bit of pressure; but the impact of a decline in the monsoon level on these companies is debatable, say analysts. 

El Nino impacts the atmosphere and increases temperature, which could further disrupt rainfalls. The Reserve Bank of India has also warned that this adversity can impact the yield, which could further trigger the inflation rate above 8.5% and may result in hiking rates further.

According to an ET report, first, for agrochemical companies, a chunk of their revenues come from exports, which hedges their exposure to domestic market.

And second, even monsoon forecasts are subject to periodic revisions. At the same time, inadequate monsoon could be good news for players in the seed or irrigation business, added the report. 

There is 40 per cent likelihood of India receiving below normal monsoon rains this year because of an El Nino phenomenon developing in the Pacific Ocean, ET reported, quoting Skymet, a Delhi-based private sector weather forecaster.

According to experts, even if bad monsoon plays the devil, the impact on economy and agri stocks will be short lived and most of the stocks have their own set of individual stories and triggers which will support them in the long term.

Sashi Krishnan, CIO, Birla Sun Life Insurance Co. Ltd is of the view that if at all we do see pressure on the consumer sectors consumer driven sector it would be very short lived because we are having some concerns in terms of a less than normal monsoon because of the EL Nino effect.

"The first impact of that will be on the consumer sector but that is going to be a very short lived sort of impact and as we go into the latter part of the year this sector should also sort of recovery," he added.

According to analysts, there is a distinct traction happening in some of the agri companies and this is quite visibile in names like Monsanto, Jain Irrigations, UPL Ltd etc. These stocks have moved sharply in the last couple of months.

"I am not very surprised with the kind of a movement which is happening into some of these Agri companies, UPL of course is a different story," said Deven Choksey, MD, K R Choksey Securities.

UPL as well as Rallis India reported results which were better than expected could be major factors contributing to the recent rally.

"Apart from better results, they (UPL) are probably talking of some major expansions into the business and that is where the larger amount of interest has once again started coming back into UPL," added Choksey. 

Choksey is of the view that Jain Irrigation have the potential for appreciating two-three times over the next two years or three time. He feels that there is lot of underlying value in many of the agri companies including Jain Irrigation and Rallies which one would cannot forget and that is where the investor interest has started coming back into the stocks.

Courtesy: The Economic Times