Fertilizer stocks jump up to 20% on MSP hike

Shares of agriculture-related companies, including fertilizer stocks, witnessed a sharp rise in intraday trade on Thursday due to optimism in the market over MSP hike. Shares of FACT (The Fertilizers and Chemicals Travancore) closed in the 20% upper circuit limit. It was trading at Rs 1,093 per share, resulting in a rise of nearly 71% in just 11 sessions.

Similarly, other stocks like Rashtriya Chemicals & Fertilizers, National Fertilizers, Madras Fertilizers, Chambal Fertilizers & Chemicals, Gujarat State Fertilizers & Chemicals, Paradeep Phosphates, Zuari Industries and Coromandel International have gained between 3% and 19% in today's intraday trade.

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Investors anticipate that the increase in MSP will increase the purchasing power of farmers, thereby increasing their investment in agricultural inputs like fertilizers.

The Union Cabinet on Wednesday announced the Minimum Support Price (MSP) for 14 Kharif season crops, including paddy, ragi, bajra, sorghum, maize and cotton.

MSP hike is expected to have financial impact The government is expected to gain Rs 2 lakh crore from this. The increase of Rs 35,000 crore for farmers as compared to last season is aimed at significantly increasing the income of farmers and improving their economic condition.

The MSP increases range from 1.4% to 12.5%, with paddy, the most widely grown crop, seeing a notable 5.35% increase in its MSP. The highest absolute increases have been recommended for oilseeds and pulses.

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The MSP hike announcement has also boosted stocks in other sectors such as FMCG, consumer durables and auto, with Nifty FMCG, Nifty Auto and Nifty Consumer Durables indices currently trading with gains of up to 0.50%.

Notably, fertilizer stocks today saw their second consecutive gain, after a strong performance in the previous trading session amid reports of possible GST relief. Reports suggest that the GST Council may provide some relief to fertilizer companies from retrospective tax demands in its meeting scheduled for June 22.

'Preparing for a big rally'

Analysts have also turned optimistic towards fertilizer stocks, saying the sector is showing early signs of leadership within the high-beta sector after a mixed performance in recent years.

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Domestic brokerage firm Nuvama Institutional Equities said the fertilizer sector is gearing up for a major rally as there is structural confirmation of an uptrend in the long-term charts of select fertilizer stocks, which are attracting strong attention.

The basket of fertilizer stocks has formed higher tops and bottoms on the medium-term charts, indicating a possible trend change and resumption of the uptrend. The overall outlook appears positive, indicating that a major uptrend will unfold in the coming years, with a new sector likely to emerge from the PSE space, as highlighted by the brokerage.

Nuvama has identified three fertilizer stocks – Chambal Fertilizers & Chemicals, National Fertilizers, and Rashtriya Chemicals & Fertilizers (RCF) – and issued 'buy' recommendations for each.

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Its first target price is 580 and second target price A target of Rs 765 has been set on Chambal Fertilizers. Similarly, it has also set a target for the shares of National Fertilizers, with the first target being Rs 765. 185 and another target 255 per share. Additionally, the first target price of RCF shares is 275 and another target price 370.

Disclaimer, The views and recommendations expressed in this article are the views of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decision.