Opportunity to make some sweet profit in sugar stocks

There is buying opportunity in some sugar shares. So for that first  we need to understand developments in sugar sector. Prices of raw sugar are at 11 year high. In last one month raw sugar prices have increased 20%. While in domestic market, sugar prices increased by 6%.

For the sugar year 2022-23, domestic sugar production estimate has been revised down for the second time. Due to this, retail sugar price can further increase. Government has set the limit of 6.1 milion tonnes for sugar export.

The private organisation of sugar mills in the country, the Indian Sugar Mills Association (ISMA), has once again reduced the estimated production of sugar for the sugar year 2022-23. According to the new estimate, ISMA has stated that 32.8 million tonne of sugar will be produced this year. In January, the estimate was 34 million tonne of production. Last year in October, the estimate was 36.5 million tonne. During the sugar year 2021-22, 35.8 million tons of sugar was produced in the country.

Before the end of April, all mills had closed, resulting in a 20 percent decrease in production. Generally, sugar mills open in November when the sugarcane is harvested and remain open until June or July. Erratic rainfall, low crop yield, and reduced production have not only affected domestic but also international sugar prices. The global price of sugar is Rs 55 per kg, which is the highest in 11 years.

The government has set a limit of 6.1 million tonne for sugar exports. Before the general election in 2024, it’s not very likely that sugar prices will increase. If domestic prices increase significantly,  the government may not approve additional exports. With the start of summer, demand from bulk buyers can also increase. During April to June, higher temperature increases the demand for cold drinks and ice cream, which supports the demand. The demand is also supported by the wedding season in summers.

But how have all these developments impacted the sugar sector. Due to lower production and higher demand in domestic market, sugar stocks are recovering from lower levels. In March, most of the sugar shares hit their low.

Due to increase in prices, shares are recovering, but they are still way below their 52-week high. Major sugar shares are around 15-32% down from their 52- week high.

So, overall we can say that recent development in sugar sector has given some recovery to sugar companies shares, however they are still below their 52 week high. Now let us look at sector’s outlook. Should you still buy sugar stocks. If yes then what are the few stocks that you can choose.

So, you may have understood sugar sector can add sweetness to your portfolio. You can invest a portion of your portfolio in the sugar sector. However, keep in mind two things. The first is that there is a risk and volatility in the stock market, and the second is that the sugar industry has cyclical component. Cyclical nature means that there volatility in this industry. If production supply is higher than demand then prices decrease. However, while investing in the current scenario, you should keep in mind that if production is low, exports may also remain limited, so the government may intervene.

(Disclaimer: Stocks recommendations by experts or brokerages are their own and not those of the website or its management. Money9.com advises readers to check with certified experts before taking any investment decisions.)