Stocks of fertiliser makers tumbled in trade on Tuesday. While there was no specific reason behind the fall, the negative sentiment market-wide had a rub-off effect on fertiliser stocks too. Fertiliser stocks saw their prices fall between 3 and 7 per cent, with urea maker National Fertiliser Limited (7 per cent) losing the most, followed by Paradeep Phosphates (4.2 per cent), GSFC (4.2 per cent), Chambal (4 per cent) and GNFC (3.3 per cent). Also, several of them have had a strong rally in the past year and profit booking may have also resulted in the sharp correction.

That said, we believe the stock price reaction to be unwarranted, for two reasons.

First, the budgetary allocation for urea and phosphatic fertilisers has not changed since the interim budget was announced in February this year. The subsidy provision for indigenous urea is lower by 4 per cent as compared to the revised budgetary provision for 2023-24. This is largely on account of moderation in the input prices, which is linked to the price of crude and derivative chemicals, and natural gas. Similarly, the provision for phosphatic and potassic fertilisers - also known as complex fertilisers - has been maintained at the interim budget levels. This is lower by 18 per cent as compared to the revised allocation for 2023-24. Lower commodity prices particularly of rock phosphate, and sulphur (crude derivative) have been the reason for lower subsidy allocation.

Second, the Government, in the economic survey, had indicated the use of Agri Stack for targeted delivery of fertiliser subsidies. Agri Stack is a digital foundation set up by the Government to improve outcomes by using data and digital services and bringing together all the stakeholders in the agriculture space. Using this, the Government aims to curb the misuse of subsidised fertilisers for non-agricultural purposes and to ensure rationalisation of fertiliser use. While it may be perceived that such a move may impact the sale and usage of domestically produced fertiliser, the fact remains that India imports almost a fourth of its fertiliser requirement. Rationalisation of fertiliser usage will not only promote balanced fertilisation but will also help the government save precious foreign exchange, without impacting the domestic industry.