Should you invest in sugar stocks?

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Sugar shares are getting sweeter. Most of the sugar shares have given a good return in past 3 months. However, is there still an opportunity for investment in these shares? What should be done in these shares now? There is an impact of El Nino on sugar production. In the 2021-22 sugar season, when India was the world’s largest producer of sugar. 3.59 crore tons of sugar were produced from sugarcane mills.

But according to a report by Care Edge. It is estimated that sugar production will remain at 3.40 crore tons in the 2022-23 season. This is the final production after the allocation for ethanol. Not only that, in the current sugar year, production is expected to decrease to around 3.17 crore tons.The Indian Sugar Mills Association, also estimates this figure.

According to Swiss trader Avlean, even on a global scale, there could be a reduction of about 54 lakh tons in sugar production this year. Low production has led to an increase in sugar prices. Sugar prices are at nearly a 6-year high. In the upcoming festive season, there will be an increase in sugar demand, putting pressure on prices. This is good news for sugar companies. They have started using sugarcane for ethanol production on a large scale, where they earn good income.

According to ISMA, it is estimated that around 45 lakh tons of sugar will be used for ethanol in the 2022-23 sugar season. Due to this, sugar mills could experience revenue growth of 8 to 12 percent. Speaking of sugar shares that have performed well in terms of returns Bajaj Hindusthan Sugar has provided a return of 47 percent in the past three months and 124 percent in one year. Uttam Sugar Mills has given a return of 29 percent in the last three months and approximately 57 percent in one year.

Experts suggest that due to the lower sugar production this year, sugar shares may continue to perform well. Systematix Institutional Equities has recommended buying Balrampur Chini, Dwarikesh Sugar, and Triveni Engineering.

On the other hand, Arun Mantri, the founder of Mantri Finmart, says that “While sugar shares are traditionally considered seasonal companies for investment. In recent quarters, the perspective has changed. Because now sugar companies have started producing ethanol on a large scale.

Poor weather conditions and lower production have recently led to an increase in sugar prices. This will certainly have a positive impact on companies’ earnings. In such a scenario, if there is a significant decline in sugar shares it could be a good opportunity for long-term investors.”

Arun Mantri suggests that from the sector shares like Triveni Engineering, Balrampur Chini, Uttam Sugar, or other shares… could be invested in the event of a significant decline.

So the advice for investors like Sanjeev is to choose good shares even in the face of price increase. However, invest in these shares cautiously because there can be rapid changes in supply and demand balance in commodities. If the government imposes a ban on sugar exports, domestic availability may increase and sugar rates may decrease. Investors should keep an eye on this news. You should avoid buying shares at a high price.