Forget gold, Dalal Street's new obsession is rice!

Mint

5 days ago

The timely revival in this year's monsoon showers not only promises plentiful paddies but has also sparked a frenzy among investors eyeing robust returns from rice and agrochemical players.
With a notable boost from rising rice acreage, companies like LT Foods Ltd (owner of the Daawat basmati rice brand), Mishtann Foods Ltd, and KRBL Ltd have emerged as top gainers, outperforming broader market indices.
Green shoots
As of 18 July, India's rice sowing hit 17.7 million hectares, a 12.4% jump from a year ago, reaching a three-year high, according to data from the Centre for Monitoring Indian Economy.
Overall kharif or monsoon crop acreage reached 70.8 million hectares, covering nearly two-thirds of the typical season's area and indicating a broad-based improvement following an inconsistent start to the season. The area sown is 4.1% higher than in the corresponding period last year.
The rapid progress in rice sowing is particularly striking as farmers expanded rice acreage by 5.3 million hectares between 11 and 18 July. This marks the second-highest week-on-week gain this kharif season, trailing the 5.4 million hectares added between 4 and 11 July.
Two consecutive weeks of such substantial gains signal healthy progress and a strong outlook for rice this season.
From paddy to profits
This surge in rice acreage has ignited a wave of optimism on Dalal Street, driving robust double-digit returns for a select group of rice and agrochemical stocks since the monsoon's onset in June.
Some rice segment players have shown significant outperformance, dwarfing the Nifty 50's modest 0.3% rise from 30 May to 25 July. The Nifty Rural index is up 1.6% while the Nifty FMCG is down 1.3%. MCX Gold advanced 3.14% over the same period.
Among top gainers, GRM Overseas Ltd soared 26%, Mishtann Foods Ltd climbed 25.3%, and Sarveshwar Foods Ltd rose 11.5%. LT Foods and KRBL rallied 11% and 10.6%, respectively.
However, Chaman Lal Setia Exports Ltd and Kohinoor Foods Ltd declined 3.7% and 7.5%, respectively, highlighting investor preference for companies boasting strong fundamentals, export capabilities, and brand visibility.
Parallelly, the momentum extended strongly to other agri and allied segment stocks.
Companies such as Best Agrolife Ltd, Astec LifeSciences Ltd, Jubilant Agri and Consumer Products Ltd, Heranba Industries Ltd, Meghmani Organics Ltd, and Bharat Rasayan Ltd posted stellar returns ranging between 16% and 42% over the same period, underscoring broader bullish sentiment in agri-input plays amid expectations of a bumper kharif season.
Growth drivers
According to Prashanth Tapse, senior vice president and research analyst at Mehta Equities, the rally is underpinned by real improvements in fundamentals. 'The surge in kharif rice sowing—strongest in three years—signals a healthy production outlook for FY25," he said.
Tapse added that India, which accounts for around 40% of global rice exports, is well-positioned to benefit from higher global prices and volumes.
'Export-led, branded players like KRBL and LT Foods are best placed to capture this demand, with margin improvements and earnings growth likely in the medium term," he said. 'Such companies have sustainable, high-margin business models well-suited to capitalize on the current global rice demand and policy support."
Bhavik Joshi, research analyst at INVASSET PMS, added that brand strength and operational execution are becoming key differentiators.
'Companies like LT Foods, with both a strong domestic footprint and deep export presence, are standing out. The India-UK FTA, which allows 95% of Indian agri exports duty-free access, further boosts their long-term prospects. The market is clearly distinguishing between commodity players and branded agri exporters with global ambitions," Joshi said.
He, however, added that while fundamentals are 'clearly supportive, especially the 12% year-on-year jump in kharif paddy acreage", the 'sharp rally in low-float names also hints at speculative positioning ahead of earnings".
Joshi cautioned that for the rally to sustain companies must deliver on margin and volume expectations. 'Otherwise, gains could reverse as quickly as they came," Joshi said.
Recent shareholding data reveals a low public float (free-float shares excluding promoter holdings) in some firms.
As of June, promoter and promoter group shareholding stood at 74.1% in Chamanlal Setia, 60.2% in KRBL, 51.4% in Sarveshwar Foods, 51% in LT Foods, 43.48% in Mishtann Foods, and 37.67% in Kohinoor Foods. Promoter holding in GRM Overseas was 70.8% as of May, the latest data available with Capitaline showed.
Monsoon revival key
Following a sluggish start to the season in early June, India's monsoon has staged a significant comeback. Although recent weeks have seen more scattered rainfall, causing some concern for rain-dependent areas, the broader outlook remains robust.
As of 23 July, cumulative rainfall was 389.1 mm, 5% above normal, signifying a largely satisfactory national monsoon performance so far this season. About 84% of India has received normal to excess rainfall (49% normal, 35% excess or large excess), with only 16% experiencing deficient conditions. No region is in severe monsoon deficit.
'While overall sowing surpasses last year's figures and water reservoirs hold strong, the coming weeks will be pivotal in assessing the complete impact on agricultural output, food security, and rural economic vitality," PL Capital said in a recent report.