PESTS MAKE TEA STOCKS ATTRACTIVE *By Ruma Dubey*
If your drink the morning cuppa to soothe away the worries over rising costs, maybe then it would be a better idea to shift to a new drink. The cost of this morning cuppa is also expected to shoot up, so the soother may remind you more about rising costs. Last year around this time, tea stocks had started blinking a strong green on the bourses. Reason then? Drought, which had affected the crops, leading to a shortage. This time around, there has been excess rains in the main tea growing region of India, Asaam, leading to pest attacks which have damaged crops thus once again leading to a shortage. So once again tea stocks are back in the reckoning. According to the Tea Board of India, tea production in India’s biggest growing region will decline this year because of pest attacks, driving prices higher. Output in Assam, which accounts for more than half of the country’s production, may drop 30 to 40% during the so-called “second flush.” This will have an impact on production even in July and August. Prices have already climbed by Rs.15 per kg at auctions in India’s northeast in the past two weeks and may remain firm in the coming months. The official verdict is that this year, India’s production will be less than 979 million kilograms last year, leading to a decline in shipments of premium tea to buyers in Europe and the U.S. Demand for tea in 2010, estimated in Sept 2009, was pegged to grow by around 30 million kgs while the gap between the demand and supply was expected to be at 75 million kg in 2010. In India consumption is currently increasing at the rate of 3% per annum. At this rate, from being a net exporter of India presently, the likely trend emerging is that over the next 7-8 years, India could turn into a net importer. In early 2010, there was news of a bumper crop in Kenya which could lead to some fall in tea prices. But the news now is that production from Kenya and Sri Lanka, the biggest exporters, may decline in the coming months after a surge in the first five months of the year. Production in India, till April 2010 had gone up 12% but that trend is on a strong reversal now. So what does all this mean for the tea companies? One need not be a rocket scientist to draw the inference that it means good times continue to roll for the tea companies. Jay Shree Tea, McLeod Russel, Tata Tea and Harrisons Malayalam are the stocks to keep watch on. These companies have had a robust FY10 and it is expected that the good times will roll through FY11. Tea prices are expected to start to inching up and stay robust, at least till end of Q3FY11. The sugar in your morning cuppa might have got cheaper but tea will continue to rock! With earning seasons rolling on, taking short term positions, with a three months view would be a good idea. * * -- EQUITY BULL -- You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en.
