Any strong recovery in Agri sector would act as cushion for market sentiments, economic growth forecasts

Ajitesh Mullick

Over the last few months, we have been regularly maintaining the fact that bearishness in the agri sector is being caused more by the adverse impact of an external factor than its own intrinsic fundamental factors.

The external factor relates to the adverse impact of coronavirus on global trade. India being the primary exporter of agricultural goods was thus, strongly impacted by lockdown in Indian and International markets.

Exports suffered and this caused prices to fall for most exportable commodities. Lack of trading due to most mandis remaining closed too kept pressure on prices even as harvesting got over and the festive season was there.

Expected scenario till year-end:

We are expecting moderate recovery in prices till the virus is not controlled. A strong uptrend in prices would very much be a possibility once that is done.

Factors:

>> Agri prices for most commodities are at very low levels – having fallen regularly over last 3 months. As per traders, these lower levels may not be sustainable in the long term as arrivals too slow down at these lower levels.

>> Even as exports get adversely affected, gradual lifting of lockdown in India is ensuring rising domestic demand in the mandis.

>> Prices are generally at lowest levels during harvesting. This is the scenario now as kharif harvesting gets over. Further fall in prices may be limited as arrivals fall.

>> The recent good monsoon report expectations by the IMD could again be a strong boost to the Agricultural sector growth. As per latest reports from Niti Aayog, the agri sector is set to grow at a modest 3 percent in FY21. This sector may well be isolated from the Corona pandemic and contribute about 50 basis points to the country’s economic growth – as per the report.

Even as concerns over the economic growth remains till the pandemic continues – even after that is over, it may take a lot of time for the global economy to recover.

For the Indian markets, however, the economy is still dependent a lot on the agricultural sector. Any strong recovery on this front would act as a cushion for the falling market sentiments and the falling economic growth forecasts.

The only concerns are about the export front, where Indian share of exports is high. Till the virus pandemic continues, exports may well remain limited – but, it will surely grow gradually as global markets remain dependent mainly on India for their agricultural supplies.

Once the pandemic slows down and gets gradually eradicated, we are expecting a strong surge in agricultural prices – aided mainly by an expected strong rise in demand on the export front.

It is our long term view and would still take some more months for that. But even till then, in the near to medium term, as global markets start gradually open up to imports from India, the sentiments look to firm up.

Latest actions by government and its impact:

>> A Rs 20 lakh crore financial package announced by Indian government to make India self reliant. It may well imply some strong package for the agricultural sector, which will be the driving force for Indian economy this financial year. We can expect this news to have strong long term bullish impact in the agri prices.

>> “Buy local, be vocal”. There’s nothing more 'local' than the agri commodities where India is the largest producer, consumer and exporter of most items. A big boost for the farm sector would itself benefit more than half the Indian population.....

>> Any positive news on relaxation on the export front would be a strong, critical factor in supporting the agri prices, which have fallen a lot due to lack of trading activities.

>> As global companies start looking at India as the most favoured nation for shifting investments, the Indian government could make it even more lucrative by offering packages. For the farmers to gain the benefits, the entire chain -right from producer to traders to corporates to the ultimate consumer - has to be benefited.

We await lots of excitement for the agricultural sector this year.

Our views remain bullish for the long term and moderately Bullish in the near to medium term.

The author is VP Retail Research at Religare Broking.

Date: May 19