Q: What is your take on the sugar sector, things seem to have improved a bit on the ground, stock prices have inched up, are you a buyer in that sector or circumspect?

A: We like sugar and tea sector in the agricommodity space because of fundamental reasons. We expect ethanol to be compulsorily blended 10%. Brazil would be exporting less sugar to the world market this year that will keep the sugar prices in world market up.

The production of sugarcane this year would be much less, to the extent of 22 million tonne, that is an official figure but our estimate is slightly lower. This would be due to the bad weather in the north. A lot of sugar cultivators have diverted to producing wheat because wheat prices were up and somehow they did not get the money from mills for last two-three years, the farmers. So net-net the acreage has sunk and production would be much lower. This is a win-win situation for the sugar.

The tea sector has already increased their prices. There would be more price increase due to political problems in Kenya. Production is down in the north as the weather is not suitable for tea cultivation.

Both tea and sugar are very high operating sectors in the industry. Rs 1 per kg increase directly adds to 50-60 crore at the bottomline. These two sectors are very good bets over the next six-seven months.

Disclosures:

It is safe to assume that my clients & I may have an investment interest in the stocks/sectors discussed.