India's Rice Export Ban: What You Need to Know

The news of India banning the export of rice has shocked the world. While India may curb inflation at home, it has certainly increased inflation around the world.

The IMF has asked India to revoke the ban, calling it 'harmful globally'. The Indian government has issued a statement saying there would be no change in the decision.

We have already seen people in the US and UK, mostly NRIs, stock up on rice when the announcement was made by the Indian government.

While those scenes from the US might have been surprising, even humorous, there is genuine concern among poor nations in the world which depend on imports of Indian rice.

Last year, India had imposed duties and restrictions on rice exports. The same has been done this year for the same reason, curbing inflation.

Will it work? Yes, it will. The Indian government, by acting quickly and decisively, has put a lid on the price of the staple grain. As per media report, domestic white rice prices have already fallen by around Rs 4,000 per tonne. But at the same time, the move has caused disruption around the world.

India is the world's second biggest rice producer and biggest exporter. By volume, India accounts for about 40% of global trade in rice. As per publicly available data, India shipped about 22 million tonnes of rice last year.

The most badly impacted nations will be in Asia and Africa which depend on Indian rice imports. It has been reported in the media that the government might consider some sales to these nations on a government to government basis. But this is only speculation at this point.

The export ban comes at a bad time for food importing nations. Recently Russia withdrew from the grain shipment deal with Ukraine and also attacked Ukrainian ports. This will likely affect wheat availability in poor nations. Now rice availability will also be affected.

Market Outlook

Inflation is a big concern in financial markets around the world. Over the last few months, inflation has been falling in developing nations. This has caused stock markets to rise. The US market has been especially strong.

The Indian market has also done very well after falling during the first three months of the year.

Could the prospect of rising inflation due to rising food prices hurt investor sentiment?

It's possible but it's important for investors to keep in mind that food inflation is never permanent. Rather, it's cyclical. If prices of some food commodities go up during six months of a year, they are likely to come down over the next six months.

This is why central banks consider 'core inflation' when making decisions on increasing/decreasing interest rates. Core inflation is inflation with the volatile food and fuel prices removed.

Thus, it's unlikely that interest rates will go up sharply just because food prices will go up in the short term.

And as long as interest rates remain stable and don't go up, the stock market will find support.

Top Rice Stocks in India

Here's a list of Indian rice stocks to add to your watchlist.

These companies are the leading rice exporters in the world. They will be impacted by the export ban.

The stock prices of these companies have been in a downtrend recently.

# LT Foods

LT Foods is a food processing brand engaged in milling, processing, marketing, and manufacturing rice and value to rice food products.

It has a diversified rice product portfolio that includes white rice, brown rice, steamed rice, organic rice, parboiled rice, and quick cooking rice.

Its flagship brands, Daawat and Royal, enjoy leadership positions in India and the US. The company has several other brands of branded rice such as Ecolife and Devaaya to name a few.

LT Foods has a global footprint in over 65 countries across four continents. It has a network of over 1,200 distributors, 137 thousand retail outlets in India and over 1,000 distributors across the globe.

It plans to grow by expanding its footprint to new countries through its flagship brand Daawat.

Current trends such as higher spending capacity, increased in-house consumption and growing health awareness will support the company's expansion plans.

To know more about LT Foods, check out its factsheet and quarterly results.

# Chamanlal Setia Exports

Chamanlal Setia Exports is engaged in the business of milling and processing basmati rice.

It primarily caters to private labels, but it also has its own brands, Maharani, Mithas, and Begum.

Chamanlal Setia Exports has a loyal client base of over 800 private buyers spread across 80 countries. The company is slowly expanding its geographical footprint by sustaining the demand in existing markets.

Its manufacturing facility in Haryana has a processing capacity of 12 MT per hour with state-of-the-art facilities.

To know more about Chamanlal Setia Exports, check out its factsheet and quarterly results.

# GRM Overseas

GRM Overseas is engaged in the business of milling, processing, and marketing branded non-branded basmati rice in India and across the globe.

It has an international presence spread across 38 countries and is the third largest exporter to the Gulf region.

Though the company has its own brands, it derives a large portion of its revenue from sales to private labels. Some of its brands include Himalaya River and Tanoush, which it introduced in the UK a few years back.

GRM Overseas has three state-of-the-art manufacturing facilities in India with a capacity of 20 MT per hour. It also has a network of 125 distributors that place its products on the shelves of over 160 thousand stores.

To know more about GRM Overseas, check out its factsheet and quarterly results.

Conclusion

In this list we have left out a prominent name KRBL due to concerns surrounding the promoter.

Rice stocks will be in the news over the next few days and weeks. However, we believe investors should not worry about short term price movements too much.

If a stock is fundamentally solid then a correction could be a great opportunity to buy it. On the other hand, a fundamentally weak stock may not be a good buy even after the stock has crashed.

A quote from Warren Buffett is appropriate here...

• "It's far better to buy a wonderful company at a fair price, than a fair company at a wonderful price."

Before adding rice stocks to your portfolio, check if it's really a wonderful company or not. This editorial can show you the right direction - 10 Rules for Successful Long-Term Investing.

And if you want to dig deeper into the financials of these companies we suggest reading their annual reports. This editorial will be helpful in that regard - How to Read an Annual Report in 1 Hour.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...