Sugar stocks turn bitter as govt steps in to check prices; analysts say worries overrated

About this update from Bajaj Hindusthan Sugar Limited

Sugar stocks saw heavy selling on December 6, following a government meeting aimed at controlling domestic sugar prices by diverting supplies away from ethanol production. The move, if taken, will likely put investors and companies in a dilemma. At a meeting earlier this week, officials reportedly took a call to stop production of ethanol from sugarcane juice and B-heavy molasses with immediate effect.In recent years, sugar stocks have rallied riding on booming ethanol demand from oil companies as India wants to achieve 20 percent ethanol blending in transport fuel by 2025. If the government diverts supply from ethanol units, the blending target will also be at risk.Follow our market blog to catch all the live actionShares of sugar companies fell up to 11 percent on December 6. Uttam Sugar was the biggest loser, followed by Avadh Sugar, Magadh Sugar, Balrampur Chini, Triveni Engineering and Bajaj Hindusthan Sugar.Also Read: Stock Market Today: Top 10 things to know before the market opensWorries over falling sugar production may have prompted govt actionThe sharp selloff reflects concerns over government interventions. Moreover, nagging worry over supply side pressure, thanks to lower sugarcane production due to El Nino is already keeping them on their toes.Indian Sugar Mills Association (ISMA), a trade body of sugar producers, last month said India's sugar production may fall 8 percent to 33.7 million metric tons (without considering diversion towards ethanol) in the 2023/24 marketing year, which started on October 1 as lower rainfall in key producing states could dent yields.Also Read: Warburg Pincus likely to sell 1.3% stake worth $100 million in IDFC First Bank via block dealIn August, ISMA had forecast sugar production of 36.2 million tons in the current season. The contraction in estimates is likely pushing the government officials for action.Govt move to check sugar prices from rising ahead of elections 2024The government decided first to restrict sugar exports, and then to extend the restrictions beyond October 31 without specifying an end date. The restriction and the recent ethanol meet are aimed at keeping sugar prices from soaring, especially ahead of 2024 general elections.“The government wants to manage prices in an election year,” said Kranthi Bathini, Director - Equity Strategy at WealthMills Securities, a Mumbai-based boutique broker. “I ...

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