Weak monsoon, rupee put pressure on India's agrochemical sector

Weak monsoon and a weaker rupee have pressured India's agrochemical sector, subduing domestic demand. An Equirus Capital report notes that while exports remain strong, domestic demand has shown signs of recovery since July.

Sector Faces Headwinds from Weak Monsoon, Rupee

Weak monsoon conditions and a weaker rupee have put pressure on India's agrochemical sector, with domestic demand remaining subdued, although demand has started showing signs of recovery since July while exports continue to remain relatively stronger, according to a report by Equirus Capital.

The report said the southwest monsoon remained significantly below normal, with cumulative rainfall around 38 per cent below the long-period average (LPA). The weak rainfall affected agricultural activity and weighed on demand for agrochemicals and fertilizers in the domestic market. At the same time, the depreciation of the rupee increased the cost of imported raw materials, adding pressure on companies operating in the sector.

Demand Outlook and Key Factors

Highlighting the sector's outlook, the report said, "Domestic demand is expected to remain weak, although recovery may begin from July and exports remain relatively stronger." According to Equirus, while domestic demand has been impacted by lower-than-normal rainfall and higher import costs, exports continue to provide support to agrochemical companies. The report indicated that stronger overseas demand could help offset part of the weakness in the domestic market.

It stated "Rainfall ran approx. 38 per cent below normal (June approx. 40 per cent short) with a below-normal July outlook, directly hurting agrochemicals and fertilizers; the rupee also weakened to approx. 95.55/USD, raising import costs" The report said weather conditions will continue to be an important factor for the sector. Better rainfall is expected to support agricultural activity and improve demand for crop protection products and fertilizers.

Based on the report's assessment, domestic demand has started showing signs of recovery since July, while export demand has remained relatively stronger. Despite the near-term challenges, Equirus remains positive on select companies in the agrochemical space. The report also noted that the sector continues to face near-term headwinds from weak domestic demand and higher input costs due to the weaker rupee. However, improving demand trends since July and relatively stronger exports are expected to provide support to the industry going forward.

Government Support through BHAVYA Rasayan Scheme

The report also highlighted the government's policy support for the chemicals sector. It noted that the Union Cabinet has approved the BHAVYA Rasayan Scheme with a total outlay of Rs 30,300 crore to develop three dedicated chemical parks during FY27-FY31. Under the scheme, the Centre will provide grants of up to Rs 10,000 crore per park for common infrastructure. This is the "first dedicated budgetary support for chemical park infrastructure", aimed at strengthening India's chemicals manufacturing ecosystem. (ANI)

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