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Why super investor Anil Goel is bullish on sugar, textiles, bearish on steel

To understand steel business, one has to first understand China, says Goel. In China, steel price is $540 and India is able to import it on paying 8 percent duty. Indian manufacturers are selling at around $630-640 and China at around $540

October 23, 2023 / 12:58 IST
Anil Kumar Goel

Super investor Anil Kumar Goel has a soft corner for shares of commodity companies. That is because he started his working life as a steel trader. The lessons helped him better understand the demand-supply dynamics in commodities and the cycles.

In an interview to Moneycontrol, Goel speaks about why he is bullish on sugar and textiles and why he is bearish on steel. Edited excerpts:

You have a sizeable exposure to sugar stocks in your portfolio. What is the big bet here?

I have seen the sugar industry in India becoming non-cyclical because of the ethanol policy. There will come a time when sugar companies will have the flexibility to produce either ethanol or sugar depending on whichever gives the better price.

How far are we from that?

Not very far I would think. When we started with ethanol, we were only converting 50 lakh tons of sugar into ethanol. In that also we were making it out of the waste, the molasses. Then slowly we started converting sugar into ethanol. From 50 lakhs tonnes we have reached to 45 lakh tonnes.

My calculation is by 2025-26, we will reach about 70 lakh tonnes of sugar (available to be converted to ethanol). Once we reach there, there will be an equilibrium between sugar and ethanol production.

If sugar prices are high, people will make more sugar and if ethanol prices are high, production will shift that side. This model has been successful in Brazil. There, companies can make 30 percent sugar and 70 percent ethanol. Sometimes it is 50 percent sugar, 50 percent ethanol, depending on the price. If the ethanol capacity goes up, we will reach that stage.

But this is a politically sensitive sector and prone to frequent policy changes. Also, this is an election year. Already the government has extended the ban on the export of sugar….

They have tried using all the levers they can but they cannot control the price because availability is not there. If you have a surplus, the government can do anything. Not otherwise.

Globally, sugar is in deficit because of El Nino. The export ban won’t hurt because there is not much sugar available to export. By the next crushing season, my hunch is that India will become a net importer of sugar. Already there are reports of smuggling of sugar to neighbouring countries being on the rise. If this trend persists, the local prices will continue to remain high.

Sugar manufacturers are complaining that the price they get from the government for ethanol is not good enough.

That will always happen. The sugar mills are making money. The industry will keep crying even when they are making money.


Which are the other industries that excite you from say, a five-year investment horizon?

I think Indian spinning mills and textiles will be good bets for the long term because we are one of the largest cotton producers. Also, because people are not buying from China for different reasons, India will benefit.

Textile is a wide space. Are you looking at any particular segment?

Overall, the textiles space should do well but spinning is where the conversion of commodity happens. My main interest is in commodities, as I am well acquainted with it. Here we are converting cotton to yarn. So you are getting cheaper cotton than the world here and labour costs in China have risen sharply. Spinning is highly labour intensive. Our labour cost is almost one-third that of China.

You have spent a long time trading steel. How is the sector looking to you?

I have been proven wrong for the last few years in steel. China has become almost 55 percent of global steel. Unless you understand China, you can’t understand the steel business. Even today, the steel price in China is $540. India is able to import from China after paying an 8 percent duty. We are selling at the local price. So what Indian steel manufacturers are selling is around $630-640, whereas China is selling at somewhere around $540.

How does one play the steel cycle?

China has been growing in steel because it managed to create an artificial real estate bubble. That also includes infrastructure.

After the 2008 global crisis, China pursued an aggressive growth path building a lot of infrastructure and real estate which wasn’t required. They were also consuming large volumes of cement.

Now they have come to a point where they can’t continue with this artificial growth. Most of the major real estate folks there are either bankrupt or facing financial troubles.

But the commentary from steel companies is positive. They say domestic demand is strong. Then why is the market ignoring steel stocks?

We can get steel from Indonesia, Nepal and  South Korea without duty on a few conditions. In fact, China has been re-routing steel through such places to avoid duty. We can still buy steel from China. So I don’t think that steel companies in India will do well in the near future.

For investors looking to bet on commodity stocks, what is the key thing that they need to look at above everything else?

One should identify strength in a given area. India has a lot of strength in making steel because we have good quality iron ore reserves while China doesn’t have that. They have to import it from countries like Brazil, Australia and other places. Yet, they are able to make steel and sell it cheap. The orders they get are very big, almost 10 times or 11 times that India gets.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Santosh Nair is Executive Editor, Special Projects, Moneycontrol. He has been writing on the financial markets for over two decades, having previously worked with Business Standard, myiris.com, Crisil Market Wire and The Economic Times. He is also the author of the popular book on Indian markets, Bulls, Bears and Other Beasts.
first published: Oct 23, 2023 12:43 pm

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