Hopes of MSP hike and ethanol policy adjustments drive sugar stocks higher

The industry has been seeking that the minimum selling price of sugar be increased to Rs 40–41 per kg.

Sugar stocks drew attention with a sudden intraday increase on June 21, though they quickly retreated from their day's highs.

Around 11:50 AM, Dalmia Bharat Sugar and Industries, Balrampur Chini Mills, Bajaj Hindusthan Sugar, Dwarikesh Sugar Industries, Uttam Sugar Mills, and Shree Renuka Sugars saw gains of 0.3-2.0 percent.

Sanjay Manyal, Research Analyst at DAM Capital, highlighted three key reasons for the recent focus on sugar stocks.

Also Read | Mawana, Shree Renuka, other sugar stocks zoom up to 13% on reports of MSP hike for FY25

Manyal anticipates that the Minimum Support Price (MSP) for sugar could potentially increase from the current level of Rs 31 per kg to around Rs 35-36 per kg. This demand arises from the industry, prompting expectations that the government may consider this adjustment.

"Additionally, there are expectations of lifting restrictions on ethanol production, specifically from B heavy and juice routes. These restrictions were imposed by the government in December, and there is a likelihood that they will be lifted soon," Manyal said.

"Moreover, there is a possibility of an ethanol price hike across all routes, including the B heavy and juice route," he said adding that these decisions are pending and could be finalised within the next 3-4 months.

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In a research report, DAM Capital highlighted extreme weather anomalies or crop infestations as risks that could impact sugarcane availability in the future. Permanent changes in ethanol blending policy or molasses quota obligations could also dampen sentiment towards sugar stocks, the brokerage said.

Recently, on June 14, sugar stocks had rallied up to 13 percent, driven by expectations of a hike in the minimum sale price (MSP) for the 2024-25 season.

Since 2019, sugar's minimum selling price has remained unchanged at Rs 31 per kg. The industry has been seeking that the minimum selling price of sugar be increased to Rs 40–41 per kg.

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