Locals shy away, FIIs get in sugar stocks

In fact of the 10 stocks that are trading at a 50% discount to their May 12 prices, five belong to the sugar sector. In the 40-50% range, as many as 11 sugar stocks have managed entry. This brings us to the question if one should celebrate this Diwali by buying into the sugar sector.

However, analysts don't seem to recommend sugar. Technical analyst Salil Sharma believes that one can enter the stock for long term, but advises against it for the short term.

While the retailer investors  seem to have shunned the sugar stocks, FII s have chosen to enter the sector. Bajaj Hindustan ,  Balrampur Chini , Dwarikesh Sugar , Dhampur Sugar , Shree Renuka Sugars , Mawana Sugar and   Ugar Sugar have all generated FII interest. FIIs have bought between 0.02% and 30% in the June quarter in the above mentioned sugar stocks.

Bajaj Hindustan , which has taken a severe beating with a negative return of over 40% in the period between May 12, 2006 and September 21, 2006, FIIs have bought over 30% in the quarter ending June 2006. 

Analysing the phenomenon, investment advisor SP Tulsian said, "In the short run sugar prices are falling domestically. Internationally, the prices have settled at USD 400, which is a very good price." He attributes the  dullness in sugar prices to the government's need to control all essential commodities.

On FIIs increasing their share, Tulsian says, "In the domestic market, sugar prices are a bit subdued that is why local investors are not taking a call on the sugar stocks. FIIs are taking a long term call and hence are bullish on these stocks."  He further adds that prices may not rise after Diwali. "I don't say it will rise, but it won't fall either. Even if they realize Rs 17/kg for this coming season, that would be a reasonable price for the sugar companies because sugar production is going to increase by about 25%".

However, he cautions investors by saying not to invest in the sector if one does not have long term view.

By-Jhini Sinha Phira