India Govt policies, normal monsoon to boost agro, speciality chemical sector; these stocks to gain up to 15%

A host of factors such as strong demand from the shift in the supply chain from China, favourable government policies and normal monsoon this year are benefitting the Agro and Speciality Chemicals sector. Also, favourable developments in this sector have resulted in strong growth opportunities in both the exports and the domestic markets, according to the Motilal Oswal Financial Services. 

The research and brokerage firm in a report highlighted that normal South-West monsoon has boded well for the consumption of fertilizers and agrochemicals in the Kharif season. It added that improvement in irrigation infrastructure and government support to farmers have aided fertiliser and agrochemical firms.

Motilal Oswal Financial Services has listed 10 high conviction ideas from the Agrochemical and Specialty Chemical space which it expects to do well in the short to medium term. “One can buy this basket of 10 stocks with a potential upside of 10-15% over the next 2-3 months. One can keep a stop loss of 8% on the overall basket,” it said in a report.

BASF India: The brokerage firm has given a target price of Rs 1,977 apiece, an upside of over 34 per cent from today’s close. The company has a diversified revenue portfolio and established presence in agrochemicals, materials and industrial solutions which helps mitigate the impact of cyclicality. “It enjoys the strong operational and financial performance. Further strong global parent support provides huge synergy and comfort,” the brokerage firm said.

Coromandel International: The fertilisers company’s stock price has rallied 122 per cent from its 52-week low. The stock hit a fresh 52-week high of Rs 830.75 apiece on Friday. The brokerage noted that normal southwest monsoon predictions have augured well for the consumption of fertilisers and agrochemicals, which provided a good start to FY21. It further highlighted that Coromandel’s phosphoric acid plant, which commenced operations recently, would continue production for the whole of FY21, which was not the case in FY20 (began in Oct’19).

Deepak Nitrite: Last week, Deepak Nitrite touched a new 52-week high of Rs 825 apiece, rising 208 per cent from its 52-week low. The brokerage firm believes that Deepak Nitrite is favourably positioned to capture opportunities emerging across the chemicals and speciality chemicals landscape as it is well-diversified across chemical space. Motilal Oswal Financial Services said that domestic business growth is expected to be driven by new launches, the addition of new trade partners, relaxation in credit policies and commencement of new capacity.

Dhanuka Agritech: The agrochemicals company skyrocketed 258 per cent from March lows of Rs 261 apiece. The brokerage firm believes that the company’s asset-light business model, superior return ratios and the recent product launches are expected to drive growth. Besides, normal monsoon, timely product launches and strong brand recognition are among some of the factors favouring Dhanuka Agritech.

Rallis India: The stock made a new 52-week high of Rs 340 apiece last week, jumping 167 per cent from March lows. The brokerage firm believes that better monsoon, increase in CRAMS portfolio, changing product mix, increasing backward integration along with revised credit terms are some of the factors which provide a boost to its financial performance.

The other five stocks from this basket include PI Industries, Atul Ltd, Tata Chemicals, Rossari Biotech and Sudarshan Chemicals.