Following the Centre’s move to hike the minimum support price (MSP) for paddy by Rs 200 per quintal Wednesday, shares of companies related to the agriculture sector jumped by up to 15 per cent.
The MSP announcement also resulted in gains for the broader market as the benchmark Sensex at the Bombay Stock Exchange rose by nearly 200 points after the announcement came and closed the day with gains of 0.75 per cent or 266 points at 35,645.
While shares of Kohinoor Foods jumped 15.6 per cent during the day, it closed with a gain of 12.96 per cent. Similarly LT Foods, which owns the Daawat rice brand, also saw its share price jump 9.4 per cent after the announcement, before closing with a gain of 7.1 per cent.
The promoter of a leading rice exporting company said that the jump in share price may be driven by sentiments and will be temporary. “I think that the market perceives that rice exporting companies may earn higher income on their existing inventory and thus make higher profits. However, that may be temporary,” the promoter said.
Even agri-chemical, pesticides and fertiliser manufacturing companies saw a jump in share prices on expectations of higher spending by farmers because of the increase in income.
While the share of PI Industries jumped 7 per cent during the day, Coromandel International rose by 4 per cent. Deepak Fertilisers and GNFC also gained up to 3.5 per cent and 2.7 per cent.
“Rural income and spending power will increase due to higher minimum price and the progressing monsoon may result in higher demand for consumption-oriented stocks,” said Vinod Nair, Head of Research, Geojit Financial Services.
Shares of two and three-wheeler manufacturers and FMCG companies also rose after the announcement. Shares of Bajaj Auto and TVS Motor Company closed with gains of 4 per cent and 3.9 per cent while the share price of Hindustan Unilever closed with gains of 2 per cent on Wednesday.