Why fertiliser shares zoomed up to 7% in trade on Dec 17; check reason here

Fertiliser shares rally: Fertiliser shares were in demand on Tuesday, December 17, 2024, with shares rising by as much as 7 per cent in intraday trading on the BSE. The catalyst for this rally in fertiliser shares was the anticipated increase in the price of Di-Ammonia Phosphate (DAP), the second most widely used fertiliser in India after urea. 

 

The price of DAP is expected to jump 12-15 per cent, climbing from Rs 1,350 per bag to between Rs 1,550 and Rs 1,590 per bag, with the revised rates set to take effect from January 1, 2025.

 

The price hike was attributed to a rise in raw material costs. India imports nearly half of its annual DAP requirement, which totals around 11 million tonnes. Additionally, the raw materials needed to produce DAP domestically are almost entirely imported, adding further pressure on pricing. 

 

The increase is expected to extend to other fertiliser grades as well, with NPKS grades seeing a hike of 17.3 per cent, pushing prices from Rs 1,470 to Rs 1,725 per 50 kg bag.

 

Moreover, the fertiliser industry has long been pushing for a lifting of the unofficial cap on DAP prices, arguing that the current pricing structure undermines the financial viability of companies and squeezes their margins. 

 

The development sparked a positive reaction in the market, particularly among fertiliser stocks. Rashtriya Chemicals and Fertilisers saw a sharp rise of 7.08 per cent, hitting an intraday high of Rs 188.95. Paradeep Phosphates jumped  5.18 per cent, reaching Rs 117.70, while Deepak Fertilisers & Petrochemical Corporation climbed 3.07 per cent, touching Rs 1,327.25 per share. Chambal Fertilisers also saw a solid gain of 2.61 per cent, reaching Rs 546.45, and Gujarat Narmada Valley rose 1.90 per cent, hitting Rs 630.90. Coromandel International, in particular, hit a record high, rising 1.27 per cent to Rs 1,842.65 per share.

 

Trading strategy

 

According to Jigar S Patel, senior manager of equity research, at Anand Rathi, booking profits in Coromandel International, Chambal Fertilises, and RCF is advisable as these stocks are trading near bearish double top patterns and the R3 Camarilla Pivot Resistance, key levels often associated with trend reversals.

 

For Coromandel International, resistance is at Rs 1,850, with support near Rs 1,780, signaling a potential pause in the uptrend. In Chambal Fertilisers, resistance is at Rs 550 and support near Rs 520 indicate similar reversal risks.

 

RCF faces resistance at Rs 189 and support at Rs 176. A decisive close above Rs 189, however, could invalidate the reversal signal and trigger fresh bullish momentum.

 

Meanwhile, a wait-and-watch approach is recommended for Deepak Fertilisers, as it remains weak below the S3 Camarilla Pivot Support. A close above Rs 1,320 could signal strength, driving the stock toward Rs 1,400. Traders should exercise caution and wait for clear confirmations before initiating new positions, Patel added.

 

Indian fertiliser industry

 

According to Indian Brand Equity Foundation (IBEF), the Indian fertiliser industry is on a strong growth trajectory, with projections indicating it will reach $16.58 billion (Rs 1.38 lakh crore) by 2032, growing at a compound annual growth rate (CAGR) of 4.2 per cent from 2024 to 2032, data from market research firm IMARC Group revealed. 

 

In 2023, the market size stood at $11.32 billion (Rs. 94,210 crore), propelled by rising agricultural demands and strategic government interventions. The fiscal year 2024 witnessed fertiliser production hitting 45.2 million tonnes, reflecting the effectiveness of policies aimed at boosting domestic production. 

 

India, being the world's second-largest producer of fruits and vegetables, continues to benefit from key government schemes such as PM-KISAN and PM-Garib Kalyan Yojana, which boost farmer liquidity and encourage investment in fertilisers.

 

Aligning with the Atmanirbhar Bharat initiative, India recorded a notable decline in fertiliser imports in FY24, with urea imports falling by 7 per cent, DAP by 22 per cent, and NPKs by 21 per cent. The government’s mandate of 100 per cent Neem coating on subsidised urea has enhanced efficiency while curbing misuse of the fertiliser.