A majority of sugar stocks have faced some selling pressure after rewarding investors generously for the past few months. However, these stocks have been hit hard over the last three days. The main reason is the curb placed on sugar exports and reduce the price of sugar in the domestic markets. Experts say the government’s ethanol push — which has led to stronger demand for the distillery business — is the reason behind the industry hitting a sweet spot, besides reducing supply from Brazil — the world’s largest sugar exporter.
The government imposed restrictions on sugar exports from June 1, a move aimed at increasing the availability of the commodity in the domestic market and curbing price rise. “Export of sugar (raw, refined and white sugar) is placed under restricted category from June 1, 2022, onwards,” the Directorate General of Foreign Trade said in a notification.
However, it said that these restrictions would not be applicable to sugar being exported to the European Union and the US under CXL and TRQ. A specified amount of sugar is exported to these regions under CXL and TRQ. In a statement, the government said that with a view to maintaining domestic availability and price stability of sugar in the country during sugar season 2021-22 (October-September), it has decided to regulate the sugar exports with effect from June 1.
Ravi Singh, vice president and head of Research Share India, explained that “Due to rising oil prices, India plans to introduce 20 per cent ethanol blending with gasoline in some parts of the country from April 2023 and full rollout by 2025-26. To increase the quantum of blending, pan-India ethanol production capacity will have to increase from the current 700 to 1500 crore litres. With a view to maintain the domestic availability and price stability during the sugar season 2021-22 (October-September), the government has placed sugar export under the restricted category. However, the normal monsoon prediction has given a hope of bumper sugar harvest next season ( October- September) which may result in revoking the export ban.”
Is It The Right Time To Buy The Dip?
Talking about what should one do with sugar stocks, Aamar Deo Singh, head advisory, Angel One Ltd., “Most sugar stocks have already corrected by over 30 per cent-40 per cent over the past couple of months, hence long-term Investors are advised to hold their positions, as this appears to be a short-term government measure to reign in prices.”
“However, investors looking to enter new positions on the back of the ongoing factors, Balrampur Chini, Shree Renuka Sugars, and Dhampur Sugar are looking attractive for long-term investment. The overall sugar sector shows a positive outlook in 2022, said Singh.