Sugar Stocks Extend Rally But Analysts Suggest Caution

NDTV Profit Team

14 Jun 2016, 03:50 PM IST

Analysts say shortage in sugarcane supply is the main reason behind the rally in sugar stocks.

Sugar stocks extended their rally on Tuesday with shares of six companies hitting fresh 52-week highs. Dwarikesh Sugar, Mawana Sugars, Oudh Sugar Mills, Shree Renuka Sugars, Bannari Amman Sugars and Ugar Sugar Works rose between 2 per cent and 20 per cent to hit fresh 52-week highs today.

Hopes of improving financial health of sugar prices on the back of rising sugar prices have been attributed to the rally in shares of sugar companies, traders say.

Sugar production in India was impacted in last two years due to drought which pushed up prices. Globally, too sugar production also declined in last two years, supporting the price gain in the commodity.

The rally in sugar shares in the past one year has multiplied investor's wealth. Ugar Sugar Works, which produces both sugar and ethanol, for example, has delivered close to 600 per cent return in last one year.

However, some analysts advise caution after the sharp run-up in some sugar stocks.

"Sugar shares have already run up, so this is the time to be cautious... There is a bubble in two-third of the sugar stocks," G Chokkalingam of Equinomics Research & Advisory told NDTV Profit.

Mr Chokkalingam said sugar is a cyclical sector, which has created and destroyed wealth as well. If investors get trapped at the peak of the cycle they will end up losing money, he said.

"From 2006 sugar peak to last year, there are many stocks, which have lost 70-90 per cent. So one should not be too late in the cyclical sector," he added.

Abinash Verma, director general of Indian Sugar Mills Association (ISMA) told NDTV that sugar prices may continue to remain firm over next 12-18 months. However, he does not expect the rally in sugar prices to continue beyond that. Good weather could lead to higher production of the commodity during the 2017 season, he added. (Watch)

Ugar Sugar shares closed with 20 per cent gains, while Dwarikesh Sugar, Mawana Sugars, Oudh Sugar Mills ended up 2-14 per cent. In comparison the broader Nifty closed flat.