Sugar stocks extended their fall for the second day on May 25, a day after the government announced restrictions on sugar exports that kick in from June 1, the latest in a string of measures to curb surging inflation.
Dwarikesh Sugar Industries dropped 8 percent, Dalmia Bharat Sugar and Industries 7 percent, Triveni Engineering & Industries 6 percent, Balrampur Chini Mills 8 percent, Avadh Sugar & Energy lost 6 percent, Shree Renuka Sugars 4 percent, and Uttam Sugar was down 5 percent in the morning trade.
"Government move will increase domestic supply and put pressure on local prices which will effectively reduce sugar firms' margins", said analysts on the condition of anonymity.
After the wheat export ban and hike in export duty on certain steel products, the government announced it would restrict sugar exports to 100 lakh metric tonnes (mt) to keep domestic prices in check.
"Over the past few weeks, these stocks have undergone a correction due to fears of global food shortage and consequent regulatory risks re-emerging. Reports of the Govt putting a limit on exports of sugar are not helping either. These fears could have a temporary effect and these stocks could come back in favour unless sugar stocks are once again treated as cyclical," said Deepak Jasani, Head of Retail Research, HDFC Securities.
Analysts said that the 10 MT was a “fairly large cap” and it would “help mills to export maximum amount and keep the bare minimum in the country”.
India is the world's biggest sugar producer and the second biggest exporter behind Brazil.
The restrictions on sugar exports (raw, white, and refined sugar)[1] between June 1 and October 31, 2022, aim to ensure adequate domestic sugar availability and price stability in the backdrop of record high sugar exports in SY2022, according to Sabyasachi Majumdar, Senior Vice President & Group Head – Corporate Ratings, ICRA.
The imposition of such restrictions may limit sharp price movements in the domestic market without having any major adverse impact on export volumes as well as the profitability of sugar units for FY2023 as ~90% of the expected total exports (9-9.5 million MT) have already been contracted by now, Majumdar added.
Initially, India planned to cap sugar exports at 8 million tonnes but the government later decided to allow mills to sell some more sugar after production estimates were revised upwards.
The Indian Sugar Mills Association, a producers' body, revised its output forecast to 35.5 million tonnes, up from its previous estimate of 31 million tonnes.
(Reuters contributed this copy)
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