Special bonds buoys fertiliser stocks

Fertiliser stocks on Wednesday wilted as market sentiment turned negative but scored decent gains over a week period on the back of special bonds announced by the Government. According to analysts, fundamentally, these stocks are well-poised after last week’s issue of special Government bonds. According to Mr Arun Kejriwal of KRIS, Chambal Fertilizers and Nagarjuna Fertilizers, being part of the F&O market, were sensitive to sentimental fluctuations. He pointed out the fertiliser stock has seen a decent run up and a correction is part of the normal valuation process. The 14-year Government of India 7 per cent special bonds worth Rs 10,000 crore have been issued to 23 fertilizer companies as a compensation for subsidy at a time when liquidity situation has improved a lot and bond yield curve is trending downward. Head of an advisory firm for overseas funds said the 14-year SLR bonds are fetching 6.3 per cent return. “In case of the special bonds, adjusting for a relative discount to SLR, these 7 per cent bond are clearly at a premium. The risk being the same, demand for these long-term bonds is healthy, particularly from the insurance sector.” A dealer at a foreign bank said CRR, repo and reverse repo rate cuts and the central bank’s shift in focus to growth from inflation have seen liquidity going up for long-term bonds. “The yield has been falling and is likely to fall further.” Analysts feel that it would be easy for the fertiliser companies to liquidate these bonds and the premiums for the bonds would positively impact their bottom lines. Companies with higher dependence on fertiliser for profits, such as Zuari, FACT, Mangalore Chemical, Nagarjuna Fertilizers and GSFC are likely to be beneficiaries compared to companies with diversified business. Chambal Fertilizers on Wednesday declined by 7.33 per cent, Nagarjuna dropped by 2.64 per cent, Zuari fell 2.92 per cent and Mangalore Chem lost 2.76 per cent. However, FACT gained 1.93 per cent and GSFC closed in the green.