PROFIT FROM THE COMING AGRICULTURAL BOOM

Sectors having a dependence on agriculture could be outperformers to watch out for. With the rise in prices of global agro commodities, the Indian farmer tends to benefit to a large extent. This increased income in the rural hands could play a large role in driving consumption patterns across the space. Some of the sectors which stand to gain from this effect are:

1. FMCG : FMCG companies could benefit from increased spending patterns resulting from higher disposable incomes in the hands of the rural population. Investors would do well to concentrate on those companies which have invested large resources to establish their presence in rural areas.
   
2. Agrochemicals : A natural beneficiary of increased crop yields would be companies engaged in crop protection in the form of insecticides and pesticides. Also it would be interesting to watch out for stocks of businesses which produce genetically modified seeds which are resistant to various pests and provide higher farm yields.
   
3. Fertilizers : Fertilizers, which have not participated in the bull market could be major beneficiaries because of several factors now turning in their favour. The new fertilizer policy gives an incentive to companies which look to increase capacity. Again the recent news of the Government intending to provide subsidies to companies in the form of cash rather than bonds augurs well for this sector, because the bonds had then to be sold by the fertiliser companies at a discount. Then the expected gas from KG basin expected to commence by December 08 would reduce the dependence of these companies on expensive fuel.
   
4. Banks : As consumption increases, so would the demand for loans and other financial products catering to the rural space. Banks having an established presence in these areas would stand to gain from the trend. PSU Banks look particularly attractive, considering their reach in remote places and their established network of branches.
   
5. Logistics : As prices of agro commodities rise, so would the demand for storage and transportation of these with a view to minimizing losses resulting from lack of proper facilities for movement of these. With organized retail looking to expand their presence in the food and grocery business, logistic and cold chain providers would gain from an increased demand for their services.
   

In a future post I would discuss some of the dominant companies in each of the above sectors, which would stand to gain the most from the coming agri boom.