Sugar Stocks Gain up to 82% till March, and Could Rise Fur­ther

The Economic Times - - Smart - Chi­ran­jivi.C@

timesin­ter­ ETMar­ When the mar­ket was crum­bling un­der the pres­sure of ex­ter­nal head­winds early this cal­en­dar year, sugar stocks were busy script­ing a mas­sive turn­around.

In the first three months of the year, stocks of sugar pro­duc­ers have soared up to 82% on the back of de­clin­ing global pro­duc­tion and ris­ing global prices.

Many have dis­counted this rally as a one-off traders’ rally and that things will turn for the worst for th­ese stocks soon. But Mehra­boon Irani of Nir­mal Bang Se­cu­ri­ties begs to dif­fer.

“I per­son­ally feel 4-5% of your port­fo­lio money should go into the sugar stocks, be­cause I have a very high con­vic­tion that the cy­cle for sugar has started,” he said.

“In case of sugar, if you ask most peo­ple, and that in­cludes me, they would say they will ul­ti­mately turn, and you do not know whether the rally will sus­tain,” he said.

“But for the first time in a few years, I think that the new cy­cle for sugar may be upon us,” he said.

In­ter­na­tion­ally, sugar prices have soared since the In­ter­na­tional Sugar Or­gan­i­sa­tion an­nounced widen­ing of deficit in global sup­plies. At home, do­mes­tic pro­duc­tion was down 4.43% by the end of March for the sea­son start­ing in Oc­to­ber.

Glob­ally too, pro­duc­tion has been weak in Brazil, Thai­land and Europe due to ad­verse weather con­di­tions this har­vest­ing sea­son.

In that back­drop, sugar prices climbed to their 17-month high in in­ter­na­tional fu­tures mar­ket in Chicago.

“I per­son­ally feel over the next one year there could be a short­fall as far as In­dia goes in terms of sugar pro­duc­tion. So the cy­cle has re­ally turned for the sugar sec­tor. The stocks have gone up, and can go up fur­ther,” Irani said.

Glob­ally though, things have changed a lit­tle bit in the past two weeks. Im­prov­ing weather con­di­tions and a fall­ing real have raised pro­duc­tion ef­forts in Brazil. Global funds have short­ened their hold­ing of sugar stocks with fu­tures prices tum­bling from their Marchend highs.

“With the kind of dis­tor­tions we have seen in Brazil, there is ex­pec­ta­tion of sup­ply dis­rup­tion. Even in the In­dian con­text, you are prob­a­bly look­ing at lesser pro­duc­tion num­bers,” said Mayuresh Joshi, fund man­ager, An­gel Broking.

“The sugar cy­cle moves in twoyear on-off cy­cle. So if one re­ally ex­pects the on-cy­cle, which is a pos­i­tive cy­cle for the sugar in­dus­try, to start from the com­ing crush­ing sea­son, then any sub­stan­tial move­ment in terms of the end-re­al­i­sa­tion prices for sugar is def­i­nitely go­ing to im­prove bal­ance sheets of sugar com­pa­nies,” he said.

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