Why Fertilizer Stocks are Rising

The fertilizer industry in India has long been intertwined with the success of the nation's Green Revolution. Fertilizers have played a pivotal role in achieving self-sufficiency in food-grain production.

India, currently the world's second-largest consumer of fertilizers, has an annual consumption exceeding 55 million (m) tons.

However, what's caught the attention of investors and analysts alike is the sudden surge in Fertilizer stocks like Gujarat State Fertilizers & Chemicals Limited (GSFC), Fertilisers And Chemicals Travancore Limited (FACT), Gujarat Narmada Valley Fertilizers & Chemicals (GNFC), and Madras Fertilizers.

These companies have experienced notable gains, ranging from 9% to 25%, over a mere five days.

What is driving this sudden and substantial rise in top fertilizer stocks?

Israel-Hamas War

The surge in fertilizer prices is being driven in part by the ongoing conflict between Israel and Hamas.

The Israel-Hamas war has triggered concerns about the global supply chain for potash fertilizers. The Ashdod Port is a vital export hub for Israel's potash fertilizer. This is situated to the north of Gaza and has been forced to operate in emergency mode due to the conflict.

This development puts approximately 3% of the global potash supply at risk, underscoring the vulnerability of this essential component of the fertilizer industry to geopolitical tensions.

The resulting uncertainty has led to higher fertilizer prices, which have directly impacted the stocks of fertilizer companies.

Strong Growth Prospects

Companies are poised for robust growth in the foreseeable future, thanks to recent government initiatives and favourable market conditions.

A noteworthy development is the cabinet committee on economic affairs' approval of substantial fertilizer schemes, such as the PRANAM scheme, urea scheme, and organic manure scheme, which collectively receive an allocation of Rs 3.7 trillion (tn).

These initiatives are designed to improve the welfare of farmers, enhance soil productivity, and fortify food security. Additionally, they encourage the balanced use of fertilizers alongside bio-fertilizers.

The extension of the urea subsidy scheme until March 2025 guarantees that urea remains accessible to farmers at an affordable price of Rs 242/45 kg bag despite higher actual costs.

The cost savings from this subsidy will be channelled into the implementation of innovative technologies within the fertilizer sector.

Furthermore, the Indian fertilizer market has shown significant growth, with a market size of Rs 898.5 bn in 2022. It is projected to expand to Rs 1,188.3 bn by 2028, reflecting a notable compound annual growth rate (CAGR) of 4.9% over the period from 2023 to 2028.

This promising trajectory underscores the immense growth potential and opportunities within the sector.

Conclusion

With a rising population, increasing demand for food, and favourable weather conditions, investing in the fertilizer sector can be a good move for investors.

But it's imperative to keep a close eye on fertilizer stocks in the lead-up to the Union Budget of 2023.

One must note that fertilizer stocks are not immune to risks. You must carefully analyse these stocks before you consider investing in them.

Look for companies using technology to improve their efficiency. Only companies that are continuously innovating stand a chance in this highly competitive space.

Also, a comprehensive evaluation of the company's fundamentals and valuations is indispensable. A fundamentally robust company holds the promise of delivering favourable returns in the long term.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...