Fertiliser stocks see strong profit booking after Union budget raises allocation for rural development

Fertiliser stocks saw strong profit booking after initial gains as a knee jerk reaction to the Budget's push towards rural economy.

Shares of fertiliser companies saw strong profit booking after their initial upmove as response to the increase in allocation for rural development to Rs 2.66 lakh crore in the Union Budget 2024. The allocation, aimed at improvement rural development and infrastructure, is higher than the Rs 1.78 lakh crore assigned in the Interim Budget.

Moreover, the budget also announced several other measures to improve the productivity of the agricultural sector and provide a boost to rural consumption.  These measures to support the revival of the rural economy also went well for the fertiliser sector as farmers make up their prime consumer base.

Following these announcement, stocks like Fertilisers and Chemicals Travancore (FACT), Chambal Fertilisers and Chemicals, Deepak Fertilisers, Gujarat State Fertilizers and Coromandel International rose upto 5 percent. However, investors were also quick to book profits off the counters, especially after the recent sharp run-up in these counters.

As a result, all these stocks slipped into the red, trading 2.5-5 percent lower on the NSE as of 12.54 pm.

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Aside from that, the budget refrained from making any changes to the fertiliser subsidy for FY25 that was estimated in the interim budget.

The interim budget had estimated the fertiliser subsidy requirement for FY25 at Rs 1.64 lakh crore, which was lower than Rs 1.89 lakh crore for FY24. However, with raw material prices having fallen, investors too were not even expecting any increase in fertiliser subsidies. Rather, most anticipated the finance minister to stick to the previous estimated subsidy bill.

Fertiliser companies struggled with sub-par earnings in FY24, primarily due to weak prices, muted demand, and an influx of low-cost Chinese inventory in the global market. As a result, most companies in the sector experienced a sharp decline in profitability, with both net profit and revenue suffering under the pressure of weak demand and falling prices.

However, there have been signs of recovery in recent quarters. Demand is expected to improve in the second half of the current fiscal year, coinciding with the onset of the Rabi sowing season. This positive outlook has led to a rebound in the sector, with stocks such as Fertilisers and Chemicals Travancore (FACT), Chambal Fertilisers and Chemicals, Deepak Fertilisers, and Coromandel International rising between 17-45 percent from their lows in 2024.

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