Sugar Stocks Gain up to 82% till March, and Could Rise Further
timesinternet.in ETMarkets.com: 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.