Fertiliser stocks surge up to 13% a day before Budget on hope of rural focus

The interim budget had estimated the fertiliser subsidy requirement for FY25 at Rs 1.64 lakh crore.

Fertiliser stocks were buzzing in trade, surging as much as 13 percent, in the run-up to the Union Budget 2024 due to be tabled by Finance Minister Nirmala Sitharaman on July 23.

The spike in fertiliser stocks came as investors speculate the quantum of subsidy that could be allotted to the sector in the upcoming budget. The interim budget had estimated the fertiliser subsidy requirement for FY25 at Rs 1.64 lakh crore, which is lower than Rs 1.89 lakh crore for FY24.

While the Street is not anticipating an increase in the subsidy bill, industry participants are expecting the finance minister may retain the previously estimated subsidy allocation.

"While the budgeted amount is considered to be adequate for FY25 due to moderation in input costs and prices of finished products, the reduced subsidy bill (as compared to FY24) will enable the government to allocate funds to more productive areas," Axis Securities wrote in a note.

Brokerage expects the government to increase funding towards reducing dependence on fertiliser imports and developing new capabilities such as nano urea.

Follow our live blog for all the updates

Experts are anticipating greater emphasis on boosting rural consumption, primarily through higher spending on government’s flagship programmes. A rebound in rural consumption should benefit fertiliser companies, as it would likely lead to increased spending by farmers on crop protection.

Riding high on these expectations, shares of Deepak Fertilisers, Chambal Fertilisers and Chemicals, National Fertilizers, Gujarat State Fertilizers, Fertilisers and Chemicals Travancore (FACT),  and Coromandel International were trading 3-13 percent on the NSE.

Fertiliser companies faced disappointing earnings in FY24 due to weak prices, subdued demand, and an influx of low-cost Chinese supplies into the global market. This led to a significant decline in profitability, straining both net profit and revenue of major players. However, signs of recovery have emerged in recent quarters, with expectations of a resurgence in demand in the latter half of the current fiscal, coinciding with the sowing of Rabi crop.

In this backdrop, the fertilizer industry is relying on hopes of the government's support to stage a strong rebound later this fiscal.

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