Tea Stocks brew gains amid unpredictable monsoons

Shares of tea manufacturing companies have seen smart rally in past three months on hopes of an upsurge in tea prices amid low productivity.

Bombay Burmah Trading Company,Rossell India, CCL Products, Harrisons Malayalam, Dhunseri Petrochem and Tea, Goodricke Group and Jay Shree Tea have surged between 20-65% during the period.

In contrast, the S&P BSE Sensex has moved up 17%, while the S&P BSE Small-cap index has soared 49% during the same period.

Subnormal monsoons in the growing regions of Bengal and Assam during the months of March and April have led to a decline in tea output, analysts say. Assam and West Bengal received 69% and 63% less rains than normal.

Due to inadequate rains, a prominent hike in the cost of irrigation, tea leaf defoliation, delayed use of fertilisers and scorching raising pest attacks are impending, which will result in significant crop losses, further escalating the cost of production.

“Since the beginning of 2014 adverse weather conditions have been playing havoc on tea crops in both Assam and North Bengal. The dry and drought conditions continuing through April with no immediate prospect of rain will result in depressing future crop outlook” Indian Tea Association (ITA) said in a release.

“Below normal monsoon is the main reason for the tea stocks to be on an uptrend. With the El Nino chances tapering off, the rally might as well be on its last leg", says independent market analyst, A K Prabhakar. Adding: “I would recommend investors to book profits at current levels with the sole exception of Tata Coffee.”

“We have a Hold rating on Mcleod Russel India which is the only tea stock we track. We believe that there is a case of tea prices going north from here, but we are yet to be clear on the kind of volumes they will be able to sell this year. The stocks are not cheap anymore,” said Gaurav Dua, head of research at Sharekhan.