Several eminent investors like Dolly Khanna, Vijay Kedia, Basant Maheswari, Anil Kumar Goel, Prof Sanjay Bakshi etc have taken the vow that they will never invest in any stocks that involves the Government in some way or the other.
That is why, when you peep into the portfolios of these stalwarts, you will never find stocks of PSUs, OMCs, sugar, crude oil, tobacco, liquor etc.
Fertilizer companies are a special no-no for these wizards for the simple reason that in any duel between the poverty-stricken farmers and the blood-guzzling corporate, the Government will (rightly) take the side of the farmers and not favour the corporate.
Kenneth Andrade, the whiz-kid investor, knows this elementary proposition better than anyone else. However, he still championed Coromandel International as an investment candidate on the basis that NAMO’s promise to usher in direct transfer of subsidy into the farmers’ pockets would revolutionize the Industry, free it from the evils of price control and lead to bumper gains for shareholders.
Andrade articulated this theory on a number of occasions. Apart from the Sohn India Conference, he also spoke of it on ET and CNBC TV18.
In his ET interview, Kenneth admitted that he likes Coromandel International because “fertiliser is the largest consumed product” in the rural economy. He emphasized that the rural economy is “14% of GDP and almost 20% of services income depends upon that cash flow from that economy”. The implication is that even a slight tweak to the rural sector can translate into enormous wealth for shareholders.
Kennath amplified this theory in his CNBC TV18 interview. “To enable to price the product well and the government price the product obviously it has been subsidised to the hand of the end user, I think takes away the cyclicality of the cash flows from the system” he said in his typical cryptic manner of speaking.
However, NAMO has played spoilsport and torpedoed this theory, at least for the moment.
The Government suddenly announced yesterday that the retail prices of non-urea fertilizers would be slashed. The price of Diammonium phosphate (DAP) was slashed by Rs 2,500 per tonne, while the price of Muriate of Potash (MOP) was slashed by Rs 5,000 per tonne with immediate effect.
The slash in the selling price obviously means that the profits will plunge as the raw material costs remain unchanged.
Understandably, investors were in a rush to dump all fertilizer stocks. Coromandel International was the worst affected. It dipped 14.31% but closed the day with a cut of 11.59%.
Fertilizer shares slump on price cuts, Coromandel International worst hithttps://t.co/T3M8CEdp3d
— NDTV Profit (@NDTVProfit) July 5, 2016
The punters at MMB were panic-stricken and were running helter skelter.
“sell and run away 215 will be broken in next 15 minutes” Fahim Twister cried.
“coromandel will reach 194.00 level in upcoming days , this free fall definetly will continue so it will reach 194 soon” jaiparthu prophesized.
“upcoming days? looks like it will reach it today itself” lazygrasshopper quipped.
“might hit lower circut by today” a guest warned.
However, some punters put up a brave face. “It’s all a drama…..govt trying to win some brownie points with the farmers.” Joeboy said in a tone of defiance.
Whatever may be the ultimate impact of the Government’s action, what this episode highlights is the fact that fertilizer companies are vulnerable and are constantly facing some peril or the other. Either there is a famine or a drought or a flood which torpedoes their business prospects or there is some adverse Government action always looming in the background.
So, in these circumstances, whether one should at all be invested in such stocks or whether one should take a cue from the eminent wizards and stay away is a seminal question that each investor has to answer himself!