Sugar Stocks are no Longer Sweet. Here's why Sugar Stocks are Falling...

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

POTENTIAL MULTIBAGGER

Do You Own this Little-known Smallcap Stock? >> READ MORE

  • Home
  • Views On News
  • May 12, 2022 - Sugar Stocks are no Longer Sweet. Here's why Sugar Stocks are Falling...

Sugar Stocks are no Longer Sweet. Here's why Sugar Stocks are Falling...

May 12, 2022

Sugar Stocks are no Longer Sweet. Heres why Sugar Stocks are Falling

Since the beginning of 2022, equity markets have been quite volatile. Even fundamentally strong stocks have seen a downfall in this unpredictable market.

But there was one sector where stocks were only going up. The markets were crashing but sugar stocks were enjoying the roller coaster price rise.

However, around mid-April the situation changed. Sugar stocks started dropping rapidly.

But why?

Read on to find out about the extreme movement of sugar stocks.

Why sugar stocks were rising initially

Sugar stocks have given results sweeter than sugar itself. Those who invested in sugar stocks at the start of this year were sitting on huge gains.

Then the government changed its Ethanol blending policy. It is encouraging companies to use sugarcane for producing ethanol. Ethanol can be used in the production of fuel for vehicles.

This step will not only solve the issue of scarcity of petrol but will also solve the issue of high closing stock in sugar industries.

If sugarcane is used to produce ethanol, sugar production will reduce and hence the issue of large inventories will be solved.

According to a report, 31 metric tonnes (MT) of sugar was produced in financial year 2022. This is around 11.1% higher than the production of the previous year.

According to ISMA reports, sugar exports may reach 8.5 m MT in the 2021-22 marketing year. The sugar marketing year is from October to September.

It is expected this year, there will be a global shortage in the production of sugar. Both Brazil and Thailand, the two major sugar producers, are expected to produce 7-8 MT less sugar this year. This means there will be rise in sugar exports from India.

All these reasons combined were responsible for the tremendous rise in sugar stocks.

Now let's look at why sugar stocks have come under pressure of late.

Why did sugar stocks start falling rapidly?

Around mid-April, all sugar stocks started falling rapidly. Now, this raises questions. What changed suddenly that led to the rapid fall in sugar stocks?

Earlier this week on 10 May, most sugar stocks saw a huge fall.

The reason behind this was the probable cap on sugar exports. On 25 March, it was reported that the government might introduce a cap of 8 m tonnes on sugar exports.

According to the news, the government might bring in this move to meet the demand for sugar. The demand for sugar increases around the festive season. India is the largest consumer of sugar.

It is also the second-largest producer of sugar. But still, domestic sugar prices are rising. The price of 1 kg sugar is up around 42% in the past 5 years. It was believed the cap might be introduced to control the domestic prices of sugar.

It was believed that the sugar industry would achieve the mark of 8 m tonnes of sugar exports in May. As a result of this belief, sugar stocks started falling rapidly around the end of April.

Performance of Sugar Stocks

Here's how the top stocks from the sugar sector have performed of late.

Company 1 Month YTD 1 Year
Shree Renuka Sugars Ltd. -18% 48% 215%
E.I.D. - Parry (India) Ltd. -5% 8% 17%
Balrampur Chini Mills Ltd. -21% 8% 26%
Triveni Engineering & Industries Ltd. -20% 20% 75%
Dalmia Bharat Sugar And Industries Ltd. -26% 3% 25%
Bannari Amman Sugars Ltd. -9% -6% 26%
Dhampur Sugar Mills Ltd. -31% 21% 14%
Dwarikesh Sugar Industries Ltd. -22% 47% 96%
Bajaj Hindusthan Sugar Ltd. -15% -3% 8%
Avadh Sugar & Energy Ltd. -22% 35% 94%
DCM Shriram Industries Ltd. -10% 3% 51%
Source: Equitymaster

Most stocks have come under pressure in the past month while their performance in 2022, and over the past one year, has been exceptional.

The fall is rapid but is it for the long term?

The news of the cap on exports is not yet confirmed by any kind of announcement from the government. It may as well be a rumour.

If that happens, the scenario will again change. Because all other factors except the cap on exports are in favour of sugar stocks.

Hence the fall may be rapid but it may not be long-term.

Note that ethanol has been a game changer for the sugar industry.

As diversification into distillery, ethanol, and electricity became possible, most sugar businesses in India are turning into integrated players. This has increased molasses demand.

But one must note that sugar stocks are vulnerable to the cyclical nature of the industry and agro-climatic risks related to cane production.

To know more, check out the below video where chartist Brijesh Bhatia shares his outlook for sugar stocks.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

Equitymaster requests your view! Post a comment on "Sugar Stocks are no Longer Sweet. Here's why Sugar Stocks are Falling...". Click here!

1 Responses to "Sugar Stocks are no Longer Sweet. Here's why Sugar Stocks are Falling..."

Bhavesh Shah

May 13, 2022

Appreciate the article on sugar, had one argument, isn't it possible to get the facts little early so that one can reduce the position early and avoid drawdown.... It's just suggestion

Like 
  
Equitymaster requests your view! Post a comment on "Sugar Stocks are no Longer Sweet. Here's why Sugar Stocks are Falling...". Click here!

More Views on News

DWARIKESH SUGAR 2021-22 Annual Report Analysis (Annual Result Update)

May 31, 2022

Here's an analysis of the annual report of DWARIKESH SUGAR for 2021-22. It includes a full income statement, balance sheet and cash flow analysis of DWARIKESH SUGAR. Also includes updates on the valuation of DWARIKESH SUGAR.

Are India's Top Ethanol Stocks Set for Sky High Returns? The Answer Will Surprise You... (Views On News)

Feb 24, 2022

Ethanol stocks have witnessed a massive upward rally for the last one year. Will the uptrend continue in 2022?

Sugar Rush! Top 4 Sugar Stocks to Watch Out for in 2022 (Views On News)

Feb 9, 2022

Sugar firms are witnessing a sweet rally on ethanol optimism. The momentum is expected to continue throughout 2022.

Sugar Stocks on a Roll: Shree Renuka Sugars & Dalmia Bharat Sugar up 45% in a Week (Views On News)

Jun 10, 2021

We discuss the recent run-up in sugar stocks and reasons behind the rally.

Sugar Stocks Continue Uptrend on Healthy Outlook. Can the Rally Sustain? (Views On News)

May 4, 2021

Sugar stocks have registered double digit gains this year on strong earnings outlook and optimism over the government's policy on ethanol blending.

More Views on News

Most Popular

4 Sectors to Watch for Future Multibagger Stocks (Views On News)

Jun 17, 2022

With India's economic recovery accelerating, these sectors are likely to give multibagger returns in the future.

Best Monopoly Stocks to Own in 2022 Views On News (Views On News)

Jun 18, 2022

Constant product innovation, latest technology, strong supply chain etc can all help companies enjoy monopoly like fortunes.

Is it Time to Start Buying Stocks Selectively? (Profit Hunter)

Jun 16, 2022

Some sectors have corrected by 50%. Do they merit a look?

The One Smallcap Stock I'll Recommend Now (Profit Hunter)

Jun 21, 2022

This aspect of investing has a very high weightage on your overall returns, but often gets ignored when winning stories are written.

When Will the Stock Market Recover? (Views On News)

Jun 15, 2022

This is how you can tell the market is going to recover.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

MARKET STATS