Agriculture activity, according to recent channel checks by Prabhudas Lilladher, is expected to continue at a strong pace in FY22.
A normal monsoon in 2021 for the third consecutive year, as predicted by the Indian Meteorological Department (IMD) and private weather forecaster Skymet, is likely to boost fortunes of agri-related companies such as pesticides and fertilisers, irrigation, farm equipment etc., say analysts.
They, however, caution that the impact will also depend on government policies at a time when the country is facing a second wave of Covid infections and inflation concerns given the steady rise in prices of key commodities.
That apart, the temporal and spatial distribution of the monsoon, experts say, rains will remain crucial.
“As of now, we expect the agricultural gross value added (GVA) to report a moderate growth of 2 per cent in fiscal 2021-22 (FY22), following two years of above average rainfall and healthy output expansion.
"A normal pattern of monsoon rainfall should also help to rein in food inflation, although the global trend in the prices of edible oils, as well as domestic demand-supply disruptions for perishable items such as vegetables, will continue to play a critical role,” says Aditi Nayar, chief economist at ICRA.
In the past one year (since April 17, 2020), most of the agri-related stocks have done well at the bourses.
Rama Phosphates, Deepak Fertilizers, Fertilisers & Chemicals Travancore (FACT), Harrisons Malayalam, Astec Lifesciences and Gujarat Narmada Valley Fertilizers & Chemicals have rallied 119 per cent to 310 per cent, ACE Equity data show.
S&P BSE Sensex, S&P BSE Midcap and S&P BSE Smallcap indices have moved up 54 per cent, 70 per cent and 94 per cent, respectively since then.
“Agri-related, especially pesticide & fertiliser, chemicals and farm equipment companies have done well in the past year despite Covid-related headwinds.
The trend is likely to continue in 2021, if the monsoon is good.
"Fast moving consumer goods (FMCG) may not do that well, as their fortunes partially depend upon consumption patterns, which are yet to pick up meaningfully in urban India.
"Coromandel Fertilizers, Bayer Crop, Dhanuka Agro, Chambal Fertilizers and farm equipment companies (tractor) are the ones I am bullish on,” says A K Prabhakar, head of research at IDBI Capital.
That said, IMD’s prediction record remains mixed.
In the past 10 years, its forecast has been true 70 per cent of the times, data show.
That said, given that both IMD and Skymet have forecast a normal monsoon, the probability of it being the same does increase, experts say.
“A normal monsoon will certainly boost farm sentiments. However, global food prices are the most critical determinant of rural incomes and remain a key monitorable going ahead.
"International food prices have risen (owing to supply disruptions); however, given the elevated levels of inventories, this surge is likely to be temporary and not a structural upcycle," wrote analysts at Edelweiss Securities in a recent note.
Agriculture activity, according to recent channel checks by Prabhudas Lilladher, is expected to continue at a strong pace in FY22 given normal monsoon forecast, remunerative crop prices and healthy water reservoir levels.
That apart, agrochemical and fertiliser companies, they said, have already taken price hikes starting April.
“The upcoming Kharif season seems to be stable from a business perspective for agriculture/ agri-input companies. Retain Bayer India in model portfolio given expected benefits from normal monsoon, higher sowing and robust agri sentiment,” says Amnish Aggarwal, head of research at Prabhudas Lilladher.
A key risk, however, are the rapidly rising Covid cases across the country that have yet again but brakes on the economic momentum.
Despite this, agri-related activities, analysts believe, are still likely to continue.
“Since agri produce is considered essential, the related activities are likely to go on even if they are at a slower pace (due to risingCovid infection) as compared to urban India, where most services come to a standstill in a lockdown.
"This was witnessed in 2020 as well – and 2021 will beno different,” says Amarjeet Maurya, assistant vice-president for mid-cap research at Angel Broking.