Earlier also in our sister publication, the e-Zine Money Multiplier (Issue dated April 13, 2020) IE&M Research Team had recommended some of the agro-related stocks and they did exceptionally well.
By IE&M Research
Recently one of the biggest and brightest stock investors in India increased his stake in one of the leading agro-based companies in India. The hike in the stake was not substantial; however, still it gave an indication of where the smart money has started to move. The ongoing pandemic has impacted different sectors of the economy in very adverse way but there are few pockets of opportunities emerging and agro-based companies or companies engaged into agriculture and allied services is definitely one of them.
Most of the companies in this sector have generated positive returns in the last four months. When the equity market globally is going through one of the worst phases in a decade, what is helping the agro-based companies to perform? Despite many core sectors of the economy not performing well, agro-based companies that produce raw materials like agrochemicals including pesticides and insecticides, and other ancillary services are in high demand.
The major news that went in favour of agro-related companies and sector is the government’s announcement of placing agriculture under the ‘essential category’. Hence the current challenges faced by other sectors do not bother the agro-based players. There could be some logistical and labour issues due to the lockdown but these issues will not stay for long and will eventually ease out.
Besides, fertiliser consumption for Rabi season consumption is more or less completed. Farmers are presently busy with harvesting and likely to begin Kharif sowing towards early June. By that time we do see more easing and opening up of the country. Therefore, Covid-19 should not have any major impact on demand in the near term and all this is shown in the price of companies engaged in such activities. It is also expected that government will support many companies in the sector with subsidies in light of higher international DAP prices due to supply cuts from China and a similar trend was visible for other raw materials.
What is also helping the agro-related companies is a prediction of a normal monsoon this year. The Indian Meteorological Department (IMD) along with other global weather agencies forecast normal rainfall this year. There is also some company’s specific issue (explained later in the story) that is helping these companies to perform in these tough times.
We feel Agro-based companies will do well going forward and this is a theme that is likely to play for a longer period. In the following pages, we are giving details of 11 such agro-based companies that have done better till now and are likely to continue their better performance going ahead. Investors can make a portfolio of these companies or select some companies from the list where they have a higher conviction to be part of their bigger portfolio.