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As locust threatens north India, D-Street swarms to agro-chemicals
−− The Department of Agriculture and Farmers’ Welfare has stepped in to control the menace.
Jun. 2, 2020
As a massive strike by insects threatens crops in western and northern India amid a coronavirus-induced lockdown, stock investors are seeing an opportunity in agrochemicals stocks.
Rajasthan, Haryana, Madhya Pradesh, Delhi, Uttar Pradesh, Gujarat, Punjab and Maharashtra have gone on high alert to stave off locust attacks after swarms of them arrived in the country through Iran and Pakistan and made their presence felt in the border areas and some interiors parts of Maharashtra, Uttar Pradesh and Madhya Pradesh.
The movements are said to be associated with strong westerly winds from Cyclone Amphan that struck the Bay of Bengal this past fortnight.
This has triggered an adrenaline rush in the agro-chemicals stocks. Prominent names like Insecticides India, UPL, PI Industries, Rallis India, Bayer Cropsciences and Coromandel international have already surged between 4 per cent and 13 per cent in last one month.
While some of these stocks like Insecticides India and UPL are still down up to 31 per cent on a year-to-date basis following the lockdown hit since March, others like Bayer Cropsciences have rallied up to 51 per cent, followed by Rallis India (28 per cent up) and Coromandel International (22 per cent up).
The Department of Agriculture and Farmers’ Welfare has already stepped in to control the menace. “They have advised farmers to spray pesticides and use fertiliser on a large scale. That would increase the use of fertilizer and insecticides, leading to higher demand as well as consumption of fertiliser and specialty chemicals in the near term," Ajit Mishra, VP for Research, Religare Broking.
Axis Securities’ Senior Research Analyst Suvarna Joshi, however, said the threat is not that serious. "The rabi season has come to an end. So the threat of crop loss is quite low. But these attacks can lead to increased demand for insecticides and pesticides,” she said.
The brokerage said Rallis India, Insecticide India, Coromandel International, UPL, Sumitomo Chemicals, Bayer Crop Sciences could be some of the beneficiaries. However, the brokerages do not cover these stocks.
Mishra of Religare Broking says the locust attack is not new, but the intensity this time is much higher. “This is the biggest attack in 27 years, and it could not have come at a worse time than this, as the government is already struggling with finances, and fiscal pressures continue to mount due to Covid-19.”
This is likely to put further pressure on government finances, as it may need to support the farmers if the attack lead to crop damage. Mishra picked Coromandel International, Bayer crop, UPL and GSFC as good bets.
Other analysts say FY21 could be a good year for agro-chemicals, insecticides and pesticides manufacturers despite on-going challenges to the economy.
However, they have advised investors need to adopt caution. “If the summer crop gets affected, then it may result in a shortfall in rural income, which is largely dependent on agriculture. This can hurt rural consumption and economic revival,” they said.
Sameet Chavan, Chief Analyst-Technical and Derivatives, Angel Broking, said the entire chemicals space has been doing well for some time now. He picked PI Industries and Balaji Amines as potential bets based on technical charts.
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Source: The Economic Times
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