Sugar stocks continue to advance on the exchanges even as most companies have have given 100-200% return so far in calendar year 2021. On the back of expected increase in increase the minimum sale price (MSP) of sugar, share prices of Dwarikesh Sugar Industries, Dalmia Bharat Sugar and Industries, and Balrampur Chini Mills soared over 4% each to close at Rs 72.45, Rs 437.55 and Rs 359 on the BSE, respectively.
Dhampur Sugar Mills and Triveni Engineering also advanced around 2% each on Tuesday while Shares of smaller sugar producers - Dharani Sugars & Chemicals, Uttam Sugar Mills, Magadh Sugar & Energy, Rana Sugars, Piccadily Agro Industries, KM Sugar mills and Piccadily Sugar & Allied Industries soared 5%, their daily circuit limit.
Indian Sugar Mills Association has written to Prime Minister’s Office to immediately increase the MSP of sugar from Rs 31 per kg to at least Rs 34-35 per kg to help it clear pending sugarcane dues ahead of the new crushing season that will start from October.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said sugar stocks are cyclicals and they give good returns when the industry does well. "The decline in production in Brazil augurs well for the fortunes of the industry. It appears that sugar prices are likely to move up, but only marginally," he added.
Commenting on the long term rise in stock value, Kshitij Purohit, Lead International & Commodities CapitalVia Global Research said that sugar stocks are rising due to raise the target of ethanol blending. The Indian government has raised its goal of blending 20% ethanol with petrol for the second year in a row. Now they are planning to reach 20% in year 2023 earlier it was 2025.
"Also, less production from the Brazil, Thailand, and the EU would keep supplies tight and global prices is also increasing giving benefits to Indian companies to increase their exports. Only Brazil and Thailand are expected to see 7 – 8 million metric tons drop in production each. Indian having good amount of rain in last few years and due this production of sugarcane is high which resulting low margin to sugar mills so till time sugar sector is not performing, now due to aggressive ethanol blending plan sugar mills are in radar of investors as it will improve the capacity of the mills and increase the margin," added Purohit.
Experts beleive it won't be very wise now to jump on sugar stocks almost all the sugar stock has increased by 250– 300% in last 1 year. "Currently all the stock are overbought region and investors have to wait for some correction and then invest in the sector," said Purohit. Vijayakumar said that from an investment perspective, sugar stocks have never been wealth creators.