Fertiliser stocks FACT, RCF, GSFC and others jump up to 20% on MSP hike

Agri-related companies, including fertiliser stocks, witnessed a sharp uptick in share value in Thursday's intraday trade, driven by market optimism over the MSP hike. Shares of FACT (The Fertilisers and Chemicals Travancore) were locked in the 20% upper circuit limit at ₹1,093 apiece, resulting in a gain of nearly 71% in just 11 sessions. 

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

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Investors anticipate that the rise in MSP will enhance farmers' purchasing power, thereby stimulating their investment in agricultural inputs like fertilisers. 

The Union Cabinet on Wednesday announced the minimum support price (MSP) for 14 Kharif-season crops, including paddy, ragi, bajra, jowar, maize, and cotton.

The MSP hike, projected to have a financial implication of ₹two lakh crore for the government and expected to result in an estimated gain of ₹35,000 crore for farmers compared to the previous season, is aimed at significantly boosting farmers' incomes and improving their economic conditions. 

The increase in MSP ranges between 1.4% and 12.5%, with paddy, the most widely cultivated crop, seeing a notable 5.35% rise 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 the Nifty FMCG, Nifty Auto, and Nifty Consumer Durables indices currently trading with gains of up to 0.50%.

Notably, today's gain in fertiliser stocks marked the second consecutive increase, following a strong performance in the previous trading session amid reports of potential GST relief. Reports suggest that the GST Council, in its meeting scheduled for June 22, may offer some respite to fertiliser companies from retrospective tax demands.

‘Preparing for a big rally’

Analysts have also turned optimistic on fertiliser stocks, stating that the sector is showing early signs of leadership within the high-beta sector after experiencing a mixed performance in recent years.

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The fertiliser sector is preparing for a big rally as there is bullish structural confirmation in the long-term charts of select fertiliser stocks that are catching strong attention, said domestic brokerage firm Nuvama Institutional Equities.

The basket of fertiliser stocks has formed higher tops and bottoms on the medium-term charts, indicating a probable trend change and resumption of the uptrend. The overall outlook appears positive, suggesting 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 fertiliser stocks—Chambal Fertilisers & Chemicals, National Fertilizers, and Rashtriya Chemicals & Fertilizers (RCF)—and has issued 'buy' recommendations for each.

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It has a first target price of ₹580 and a second target price of ₹765 on Chambal Fertilisers. Similarly, it has set a target for National Fertilizers shares, with a first target of ₹185 and a second target of ₹255 per share. Additionally, RCF shares have a first target price of ₹275 and a second target price of ₹370.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.