MUMBAI: Bets on sugar stocks have indeed turned out to be sweet. Shares of sugar producing companies are witnessing a bull run on the bourses since the beginning of October and have gained between 20 per cent and 80 per cent on the back of a looming global shortage in the commodity. 
 

"The rally in sugar stocks may continue as it reflects change in fundamentals," said Devang Kamdar, vice-president, Sharekhan, a Mumbai-based retail major brokerage. "International sugar prices may rise further and the shortage of the commodity is the key driver for sugar stocks. Improvement in sugar prices will ensure that eight out of 10 sugar companies will turn EBDITA positive and will able to service their debt. " 
 

The share price of sugar producers including Dalmia Bharat Sugar, Dwarikesh Sugar, Dhampur Sugar, Sakthi Sugar, Simbhaoli Sugar, Upper Ganges Sugar and Mawana Sugar has seen a rally of over 50 per cent in just two weeks. The stocks of 16 other sugar companies have seen a rise of over 20 per cent during the same time 

The widely tracked sugar futures contracts in New York are witnessing heightened activity and have gained 16 per cent since August, the biggest such rise in over two years. Reportedly, global money managers boosted their net long position by 33 per cent to 117,090 futures and options contracts in the week ended October 13, data from the US Commodity Futures Trading Commission shows. That's the highest since July 2014. Short holdings have declined in seven of the past eight weeks. 

 

Analysts say sugar prices are rebounding from a seven-year low as a strengthening El Nino weather pattern may pose threat to output in Australia and production may decline from mills in India to Brazil, world's top sugar producers. Also, sugar imports in China through August are up 50.7 per cent year-to-date compared with the same period last year, according to Chinese customs data. 

"However, in India the real rerating of sugar stocks can only happen when sugar prices are deregulated," said Dipen Mehta, head of research at Kotak Securities.

In India, sugar stocks mainly suffered as the government determined the purchase price and quantity of sugarcane from farmers. Also, changing political equations in Uttar Pradesh, the largest sugar producing state in India, have been a drag on the sector.