Look who is buying in the fertiliser space

At a time when the FIIs – the major drivers of the Indian stock markets – have turned net sellers citing rising inflation and high interest rates as major growth drawbacks, one sector that has caught their fancy is fertilisers and agro chemicals.

Ever since the government de-controlled the prices of phosphatic and complex fertilisers last year, there had been a sharp spur in the financial performances of companies operating in this space, which saw the complex fertiliser prices increase to an average of Rs 14000 per tonne from the previous Rs 9350 per tonne.

Coupled with this, the stock prices also shot up, as most of the fertiliser companies outpaced the benchmark BSE on a YTD basis.

The recently-announced proposal to de-regulate urea prices also served as a major incentive for FII buying interest in this sector. In fact, the urea price de-control is believed to be the need of the hour owing to factors like a sharp rise in international urea prices, a rising government subsidy burden, no incremental urea capacity being planned owing to lack of incentives and poor gas availability.

The proposed urea de-regulation is also expected to enable the fertiliser companies with the power to price their products at a global industry level, thereby improving their operational efficiencies and financial profitability.   

All of this has led to a renewed buying interest among foreign investors, who otherwise considered the Indian fertilisers space as an over-regulated and sluggish sector.

As per our observation, FIIs have increased their exposure to fertiliser stocks over the past three quarters. This is even as they have pruned their holdings in interest rate-sensitive sectors, such as auto, capital goods and infrastructure, among others.

For a more detailed understanding, refer to the following table which shows the FII holding in major fertiliser and agro chemical companies over the past three quarters.

Rashtriya Chemicals and Fertilizers (RCF), in which the government owns a 92.5% stake has seen the biggest jump in FII holdings. The FIIs have more than tripled their stake to 0.19% of the total holdings over past two quarters. Others that have witnessed a significant jump in FII holdings include Chambal Fertilisers, Coromandel International, Deepak Fertilisers and GSFC etc.