What’s Driving The Rally In Sugar Stocks?

Sugar stocks have run up significantly in the last two weeks, rallying as much as 47 percent since December 26, compared to BSE S&P Sensex’s 3.7 percent rise and BSE Small Cap Index’s 7.7 percent gain.

Uttam Sugar has been the best performer, followed by Ugar Sugar Works, which gained 39 percent. Bigger peers like Bajaj Hindusthan and Balrampur Chini have gained around 13 percent in the period.

What’s Driving This Rally?

All the outperforming sugar stocks, except Ugar Sugar Works, are predominantly based in Uttar Pradesh. The largest sugar producing state goes to polls next month, and that reduces the likelihood of any reduction in import duties, analysts say.

On Sunday, a food ministry official told wire agency PTI that the government has no intention to reduce the import duty, which is currently at 40 percent.

Reports that the finance ministry is considering a debt restructuring package for the sector also boosted sugar stocks.

Meanwhile, sugar prices on the National Commodity and Derivatives Exchange have risen 3.5 percent in the last two weeks. According to ICRA, sugar prices are expected to remain firm in the near-term despite demonetisation, due to steady consumer demand and tight stock positions. The projected drop in production in the ‘sugar year’, which runs from October 2016 to September 2017, could also boost profitability.