Agriculture, new cash cow for investors in stock market

MUMBAI: Agriculture is the new cash cow for the bulls on the bourses. But expert opinion is that the announcements made in the Union Budget may only give a temporary fillip to the sector and long-term prospects are still unpredictable.

Playing ���Uncle Santa��� to debt-ridden farmers, the finance minister had announced a Budget outlay of Rs 2,80,000 crore for agriculture, setting aside Rs 20,000 crore for irrigation, Rs 1,100 crore for horticulture and Rs 644 crore for crop insurance schemes. The much-publicised agri-loan waiver is expected cost Rs 60,000 crore.

���A pro-farmer budget is fine, but one should also see the ground realities. A large chunk of agriculture loans are utilised for purposes other than farming. Plainly speaking, a loan waiver is a bonanza for farmers, not farms,��� said Geojit Financial Services��� managing director CJ George.

���There shouldn���t be any direct correlation between a pro-farmer budget and the performance of agro-stocks. As a matter of fact, PSU banks (in rural areas) should do well with credit growth as farmers would apply for more agriculture loans and deposits would increase marginally,��� he adds.

The presumption among market players is that the debt waiver will motivate farmers to focus more on agriculture, thereby increasing their allocation to fertilisers, farm equipment (like tractors) and seeds.

���The actual waiving-off of farm loans on the ground, the extent of fresh loans, and where the farmers spend that money, will determine the long term value of individual stocks,��� said ITC CEO S Shivkumar.

Fertiliser and agrochemicals companies form a major chunk of agro-stocks. Boosting the sentiment is the government���s plan to announce a subsidy package for fertiliser manufacturers on the basis of the nutrient content of their product.

Fertiliser scrips have done well over the past one year. Companies like Basant Agrotech, Tata Chemicals, Bharat Fertilisers, Chambal Fertilisers, FACT, Nagarjuna Fertilisers and Coromandel Fertilisers have logged returns in the range of 30% to 211%.

Agrochemical manufacturers (including pesticides) like Bayer Cropscience, Bharat Rasayan, Monsanto, Dhanuka Agritech and Rallis India have recorded returns in the range of 20% to 100%. Karuturi Network and Titan Bio-tech, both engaged in horticulture, have logged returns in excess of 200% and 30% respectively. However, with the budget euphoria settling down and prevailing bearish sentiments, most agro-stocks are trailing down in the range of 8-10%.

���Farm input companies (fertilisers, irrigation companies, tractor companies and seed companies) would continue to do well once the market recovers. Rising food and commodity prices and strong participation of body corporates will help agriculture companies in the long run,��� said Sundaram Mutual equity fund manager J Venkatesan. The fund house is currently managing a rural India fund.

Agricultural commodity prices have been stealing the show in recent times. Prices of wheat, palm oil and maize have risen 73%, 91% and 53%, respectively, during 2007. This surge in prices has been driven by a number of supply shocks occurring at once. They included the diversion of a third of US corn production for bio-fuel production, the worst drought in a century affecting more than a third of Australia���s wheat production, and urbanisation leading to encroachment of arable land.

���To capitalise on the uptrend in prices, many agri-commodity companies have announced large capacity expansion plans, which are likely to be completed over the next couple of years. Higher capacities should enable them to benefit from strong topline growth, with stable or moderately increasing margins,��� said a recent India Infoline report on agri-business.