Summary of this article
Sugar stocks surged up to ten percent in trade.
Rising wholesale sugar prices drove the recent market rally.
Supply concerns ahead of festive season boosted stock momentum.
Shares of major sugar companies gained in trade on August 24. Shares of Shree Renuka sugar gained over 10 per cent to trade at an intraday high of Rs 27.68 apiece on the NSE. Balrampur Chini Mills shares also gained over 3 per cent to trade at a high of Rs 751.7 apiece on the NSE.
Other sugar stocks such as Triveni Engineering & Industries also gained over 3 per cent to trade at an intraday high of Rs 305.69 apiece on the NSE. Shares of Dalmia Bharat Sugar and Industries and EID Parry India gained over 4 per cent and 8 per cent respectively to trade at their respective intraday highs.
Why Are Sugar Stocks Gaining
Sugar stocks gained in today’s session amid a rise in domestic sugar prices. Notably, wholesale prices have been increasing over the past few weeks breaching the Rs 50 per kilogram mark. On the other hand, retail prices across major metros have also remained high. According to the chinimandi website, retail sugar prices across major markets such as Delhi, Mumbai, Kolkata and Chennai remained in the range of Rs 68 to Rs 70 per kilogram.
This price rise is influenced by supply-side concerns for the upcoming season and low inventory levels at mills. Notably, the supply-side concerns come days ahead of the festive season where the demand for sugar typically peaks.
Earlier in February, the Indian Sugar and Bio energy Manufacturers Association (ISMA) released its third advance estimate for the current production season and revised the domestic net sugar production downward to 293 lakh tonnes after ethanol diversion. According to a PTI report which cited the industry body, lower sugarcane yields caused by adverse weather patterns in key producing states led to the downward revision.
Earlier in July, the government ordered dealers to hold sugar stocks for no more than 30 days to ease supply concerns. Despite this sugar prices surged to record highs. Additionally, on the global front, international raw sugar prices touched a 14 month high. A tight global market can potentially limit the possibility of cheap imports flooding the domestic space, protecting the profit margins of local mills.
The tightening supply of sugar has led to a surge in wholesale market prices. For sugar companies, higher prices on every kilogram of sugar sold directly translate into expanded operating margins and stronger balance sheets, making their stocks attractive to investors.
At the time of writing shares of Balrampur Chini Mills traded at Rs 720.95 apiece on the NSE down by 1.15 per cent. Shares of EID Parry India traded at Rs 848.65 apiece on the NSE up by 6.44 per cent. Shares of Triveni Engineering & Industries traded at Rs 302 apiece on the NSE up by 2.28 per cent. Shares of Shree Renuka Sugars traded at Rs 26.52 apiece on the NSE up by 5.42 per cent. Shares of Dalmia Bharat Sugar and Industries traded at Rs 498.60 apiece on the NSE up by 0.13 per cent.
