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In the first wave, most of the sectors were affected as the economy had come to a grinding halt.

But the agriculture sector continued to grow given fewer restrictions in rural areas. Agriculture further benefited from good monsoon coupled with cheaper and higher availability of labor.

Agriculture is the primary driver of India’s rural economy providing employment to approximately 58% of population.

Reflecting on the GDP figures, India’s agricultural economy grew by 3.4% while the overall economy contracted with 7.7% in financial year 2020-21.

However, the second wave restrictions were a lot tougher in the rural parts.

Due to the lockdowns, agriculture produce market committee (APMC) mandis were closed.

APMC is a system operating under the state government since agricultural marketing is a state subject. It has yards/mandis in the market area that regulates the notified agricultural produce and livestock.

As the mandis were not opened fully, crops rotted in the fields.

Due to the closure of mandis, vegetable vendors, and processing industries were also hit.

To compare first and second wave, the average wage growth for the agriculture sector for the period of November 2020 to March 2021 has reduced to 2.9% from 8.5%in April to August 2020.

Let’s have a look at three stocks from the agriculture space which should have your attention.

#1 Coromandel International

Coromandel International, a Murugappa Group company, is the second-largest producer of fertilisers and other agri-input segments.

It has a strong presence in the South Indian states of Andhra Pradesh and Telangana.

The India Meteorological Department (IMD) has projected the monsoon will be normal at 98% of the long period average (LPA) for current year 2020-21.

Rising rural demand coupled with a normal monsoon is likely to benefit the company.

If the monsoon remains normal as projected, the company is likely to increase its volumes in both the fertiliser and crop-protection segments.

Also, the company is looking to increase its revenue share from the high-margin crop protection business with new launches and a diversified product portfolio.

Earlier this month, Coromandel International launched six new products (4 Insecticide, 1 Herbicide, 1 Fungicide).

Over the past year, Coromandel International share price has gained 23%.

Shares of the company have traded rangebound throughout the year, before breaking out last month.

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From the levels of 730 on 3 May, presently they are trading at 922.

At the current price, it commands a marketcap of 268.7 bn.

#2 M&M

Mahindra & Mahindra (M&M) is another agri play that investors should keep a watch on.

M&M is one of the leading automobile manufacturers in India, also called the ‘King’ of SUVs. It is primarily engaged in manufacturing & sales of personal vehicles (PV) and commercial vehicles (CV).

Along with these, the company also sells agricultural tractors. M&M is India’s largest tractor maker.

The company’s bottomline for the March quarter ended 2021 was boosted by improved demand for PVs and agricultural tractors.

M&M’s domestic sales in May 2021 were at 22,843 units, as against 24,017 units during May 2020, a 5% decline. Its total tractor sales were at 24,184 units, against 24,341 units for the same period last year.

The company said that Covid spread in rural markets led to strict lockdowns in May, leading to deferment of tractor purchase and limited operations at dealerships.

But with cases declining, farmers are preparing their land for the upcoming Kharif crop season.

M&M said a bumper Rabi harvest, record procurement, food prices holding up, gradual opening up of mandis, and expectations of a normal monsoon will pave the way for growth in the upcoming season.

M&M is likely to post good numbers for the coming quarter as tractor sales pick up.

However, the company’s management had guided for a subdued year for domestic tractor business amid uncertainty.

The start of land preparation, tractor buying season, and expected normal monsoon this year may help tractor and farm equipment business in the latter part of the year.

Over the past one year, M&M shares have gained 58% as compared to 51% gains in BSE Sensex.

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At the current price of 793, the company commands a marketcap of 986.5 bn.

#3 Kaveri Seed

This year, Kaveri Seed Company became the first seed producer in India with more than one lakh acres under seed production.

The bulk of the newly acquired seed production area is dedicated to the non-cotton sector and mostly towards high-margin hybrid rice, maize, and vegetable seeds. Nearly half of the land is located in and around Andhra Pradesh and Telangana.

The company constantly launches new products across segments including cotton, maize, vegetables, and rice. These are backed by strong R&D.

The company is also gaining market share in cotton seeds in states like Gujarat, Maharashtra, and Haryana.

During financial year 2020-21, the company’s cotton seeds volume declined 1.9%, but the hybrid rice, maize and vegetable seeds volume registered a growth of 48.2%, 9.4%, and 47.1%, respectively.

To top all this, Kaveri Seed is a debt-free company.

It basically all depends on what kind of monsoon we have. A normal monsoon will increase the demand of company’s hybrid seeds.

Shares of the company are down 5% over the past one month. For the past year, Kaveri Seed shares have gained 25%.

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Kaveri Seed Company engages in the production, processing and distribution of seeds. Its products include field crops and vegetables.

The company was founded by Venkata Bhaskar Rao Gundavaram and Vanaja Devi Gundavaramin in 1976 and is headquartered in Secunderabad, India.

Other agri-stocks to keep an eye on

Here’s a list of agriculture related stocks one should keep a track of.

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Agriculture sector outlook

Earlier this month, Niti Aayog Member (Agriculture) Ramesh Chand said that the country’s agriculture sector will not be impacted by the second wave as rural areas reported a surge in cases only in May when agriculture activities remained at bare minimum.

In an interview to PTI, Chand said that India’s policies on subsidy, price and technology have remained too much in favour of rice, wheat, and sugarcane. There is need to make the procurement and minimum support price (MSP) policy favourable to pulses.

‘So even if less availability of labour is there in the month of May till mid-June, I don’t think that will impact agriculture in anyway.’

To a question on farm sector growth, Chand said the agriculture sector will grow more than 3% in 2021-22.

It remains to be seen if there is a negative or positive impact in terms of agriculture production.

We will keep you updated on the latest developments from this space. Stay tuned.

This article is syndicated from Equitymaster.com

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