A majority of sugar stocks have faced some selling pressure after generously rewarding investors in recent months. However, these stocks have been hit hard in the past three days. The main reason is the restriction of sugar exports and the lowering of the sugar price in the domestic markets. Experts say the government’s ethanol push — which has led to stronger demand for the distillery — is why the industry is hitting a sweet spot, in addition to cutting supply from Brazil — the world’s largest sugar exporter.
Sugar export restriction explained
The government imposed restrictions on sugar exports from June 1, a measure aimed at increasing the availability of the commodity in the domestic market and curbing the price increase. “Exports of sugar (raw, refined and white sugar) will be placed under a restricted category from June 1, 2022,” the Directorate-General for Foreign Trade said in a notification.
However, it said these restrictions would not apply to sugar exported to the European Union and the US under CXL and TRQ. Under CXL and TRQ, a certain amount of sugar is exported to these regions. In a statement, the government said that in order to maintain domestic availability and price stability of sugar in the country during the 2021-22 sugar season (October-September), it has decided to regulate sugar exports from June 1.
Ravi Singh, Vice President and Head of Research Share India, explains: “As a result of rising oil prices, India plans to introduce 20 percent ethanol blending with gasoline in some parts of the country from April 2023, and full roll-out in 2025-26.In order to increase the amount of blending, the production capacity for pan-Indian ethanol will have to increase from the current 700 to 1500 crore liters.In order to maintain domestic availability and price stability during the sugar season 2021-22( October-September), the government has placed sugar exports under the restricted category, but the normal monsoon forecast has given hopes for a great sugar harvest next season (October-September), which could lead to the repeal of the export ban.”
Is it the right time to buy the dip?
On what to do with sugar stocks, Aamar Deo Singh, chief adviser to Angel One Ltd., says: “Most sugar stocks have already corrected by more than 30-40% in recent months, so long-term investors are advised to keep their positions as this appears to be a short-term measure by the government to control prices.”
However, investors looking to take new positions due to the lingering factors, Balrampur Chini, Shree Renuka Sugars and Dhampur Sugar look attractive for long-term investment. The overall sugar sector is showing positive prospects in 2022, Singh said.
The expert opinions and investment tips in this News18.com report are their own and not the website’s or its management. Users are advised to contact certified experts before making any investment decisions.
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