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Farm sector braves pandemic shock, 4 stocks worth looking at

With most sectors in a slump, the monsoon will also have an impact on employment generation, auto sales, and demand of cement and steel.

June 15, 2020 / 11:44 AM IST
 
 
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Gaurav Garg

India's agriculture sector stands out as a ray of hope as it has been relatively less affected by the coronavirus pandemic.

India is the largest exporter of rice globally and second-largest producer of wheat and rice after China. But the country's legal framework, so far, discouraged private sector investment in warehousing. It put stock limits on any trader, processor or exporter. When farmers brought their produce to the market after the harvest, there was a glut and due to lack of storage facilities they did not get desired price.

All this will now be streamlined as government has encouraged private investments in storage facility and allowed farmers to sell to anyone outside the agricultural produce market committee (APMC) yard.

It will bring greater competition amongst buyers, lower the mandi fee, commission for middlemen and reduce other cess that the states imposed on APMC markets. For the consumers, food inflation will remain under check.

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Agriculture is one sector which can be expected to absorb the shock of the coronavirus and deliver respectable growth. As a majority of Indian industries and sectors are now feared to plummet into negative territory, agriculture may be one of the sectors to register growth this year.

The country needs to strengthen agri-marketing as well as the public distribution system. When farmers begin to focus on marketing their produce, buyers will automatically knock at their doors. This will have a multi-chain effect that will boost the rural economy and lead to all-round development.

The measures announced by Finance Minister Nirmala Sitharaman to boost the agriculture infrastructure is an indication that the government is thinking for the long term in improving the economic fundamentals in providing key support, which can improve the supply chain, reduce wastage and lead to better price realisations. This will help create employment and lead to long-term demand creation.

The India Meteorological Department has said this year the monsoon is likely to be normal at 102 percent of the long-period average (LPA) with a model error of (+/-) 4 percent.

The monsoon would be a key aspect that Indian companies can look forward to this year. This time the monsoon will have an impact on agriculture, employment generation, auto sales, and demand for cement and steel as well. Therefore, vehicle financers (tractor/auto) and agrochemical industries are likely to benefit from the monsoon.

Here are some stocks that are likely to benefit from during this monsoon season:

Escorts: This firm is a prominent player in the tractor industry and is expected to outperform other automobile companies during this monsoon. It is advisable to buy Escorts above Rs 910, with a stoploss of Rs 830 and a target of Rs 1,000.

Rallis India: The measures for the agriculture sector could be beneficial to companies like fertiliser and crop-protection companies. It is advisable to buy Rallis above Rs 235, with a stoploss of Rs 190 and a target of Rs 290.

Avanti Feeds: Initiatives taken by the government for aquaculture would provide financial support to fishermen and also help in increasing production. It is advisable to buy Avanti Feeds above Rs 448 with, a stoploss of Rs 359 and a target of Rs 560.

Coromandel International: The impact of COVID-19 on this firm has been minimal as it falls under essential service. Coromandel International is engaged in the business of fertilisers, especially for crop protection and its nutrients. It is advisable to buy Coromandel International above Rs 645, with a stoploss of Rs 615 and a target of Rs 690.

The author is Head of Research at CapitalVia Global Research Limited- Investment Advisor.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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