Sugar Turning Into White Gold

Sugar sector, for long, has always been considered cyclical in nature. Nevertheless, some structural change that is taking place now makes it a sustainable business and reduces the cyclicality.
Sugar Turning Into White Gold

Recently global sugar prices have crossed US cents 20 per pound from a low of US cents 10 per pound one year back and more importantly domestic prices are following the global price trend and moved to a four-year high of Rs 34 per kg in Maharashtra and Rs 36 per kg in Uttar Pradesh. The impact of this on the share prices of sugar companies is substantial. Year till date most of the sugar companies’ shares have doubled in their values and some of them have even seen an increase by threefold.

Most old-time investors, who have seen many market cycles, might see this as another sugar cycle. They may also think that it will reverse soon. Their point of view has a reason behind it. They are still under impression that sugar is a highly regulated, cyclical commodity with a greater degree of the local level of politics. All these factors have led to sugar stocks being under-owned in one’s portfolio.

Global Sugar Prices

Sugar Sector

Sugar Economy Improving

Nevertheless, we believe that the current change in the landscape of the sugar sector is structural and will have far-reaching consequences on the entire sector. Factors such as improving sugar prices, government measures, and higher distillery CAPEX to leverage ethanol opportunity will help to sustain the current momentum in sugar companies.

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About the author: IE&M Team
IE&M Team
Indian Economy & Market is an Indian media and information platform producing data-backed news and analysis on all the vital elements at the intersection of the economy, stock markets, mutual fund, insurance, commodities, currency, technology, startups and business.

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