Chart check: How fertiliser stocks are faring ahead of Q3 nos, Budget 2021

Edelweiss Securities expects earnings momentum in the sector is likely to accelerate in Q3FY21 driven by good start to Rabi along with a healthy cash flow position of farmers

Shares of fertiliser companies have been on fire since the start of calendar year 2020 as the agri-economy shouldered the burden of lifting the Covid-19 pandemic-hit economy. In CY20, shares of Coromandel International, FACT, Chambal Fertilisers, and Mangalore Fertilisers were up between 42 per cent and 53 per cent on the BSE. In comparison, the S&P BSE Sensex advanced 16 per cent, while S&P BSE MidCap index surged 20 per cent.

Meanwhile, in the past one month, Mangalore Chemicals and Fertilisers, FACT, Chambal Fertilisers, GSFC, and Madras Fertilisers have gained up to 31 per cent on the National Stock Exchange. In comparison, the Nifty50 is up around 6 per cent, ACE Equity data show.

According to analysts at Edelweiss Securities, earnings momentum in the sector is likely to accelerate in the December quarter of FY21 (Q3'FY21) driven by good start to Rabi along with a healthy cash flow position of farmers. They expect UPL’s domestic business and PI Industries (domestic business) to log 40 per cent and 37 per cent YoY profit growth, respectively, driven by a conducive environment. Besides, Dhanuka Agritech is likely to yield 18 per cent YoY net profit growth, while Coromandel International's profit is estimated to grow 23 per cent. Rallis is among the few exceptions, expected to post an 8.5 per cent decline in net profit for December quarter. 

That apart, the government is expected to continue its focus on the progress of the agri economy when it presents the Union Budget for financial year 2021-22 (FY22). According to media reports, rating agency Icra expects the Union Budget to be pivotal for the fertiliser industry, giving clarity on the release of the additional allocation of Rs 65,000 crore, announced under the Atma Nirbhar Bharat 3.0 scheme and announcement of further reforms like a roadmap on the rollout of the true form of Direct Benefit Transfer (DBT) for the fertiliser sector. 

So, how shoud you trade fertiliser stocks? 

Chambal Fertilizers & Chemicals Limited (CHAMBLFERT): The recent new all-time high of Rs 247.90 in the stock has triggered a fresh upside, as per the daily charts. Going forward, the stock needs to show stability above Rs 240 levels which, if held decisively, can push prices towards Rs 260 and Rs 275 levels. The medium-term trend is bullish as long as the stock trades above Rs 220 levels, as per the weekly chart. Moreover, the stock is not showing any strong weakness in the overbought condition of the Relative Strength Index (RSI). CLICK HERE FOR THE CHART

Rashtriya Chemicals & Fertilizers Ltd (RCF): An "Inverse Head and Shoulder" formation indicates a breakout at Rs 58 levels. This yearly breakout may be achievable as the stock is showing no signs of weakness at higher levels. The yearly breakout may further see a rally towards Rs 65 and Rs 72 levels. Also, a close above Rs 56 may lead to a spurt towards Rs 58 levels in a quick session. This horizontal breakout has a support Rs 52 level, as per the daily chart. CLICK HERE FOR THE CHART

Zuari Global Limited (ZUARIGLOB): This counter has nearly doubled in the last 10 sessions. The upward bias is intact till the support of Rs 100 is held on the closing basis. The RSI indicator is also witnessing buying strength with a sharp surge in volume. This suggests the positive bias remains firm in the stock. The overall trend is heading towards Rs 140 levels. The monthly chart shows resistance around 140 levels, which is the hurdle for the past two years. CLICK HERE FOR THE CHART