Sugar stocks retreated on Friday after the central government cut subsidy on sugar exports.

The combined market capitalisation ( mcap) of the country´s top 15 sugar manufacturers was down 2.8 per cent on average on Friday.

In comparison, the benchmark BSE Sensex closed the day with gains of nearly 2 per cent to reclaim the 50,000level.

Friday´s fall in sugar was, however, an aberration.

The sector has been an outperformer due to a combination of higher sugar prices and low raw material (sugarcane) prices.

The Uttar Pradesh ( UP) government � the country´s largest sugarproducing state -has not raised cane prices for four years.

There has been a steady rise in the margins and profitability of listed sugar companies � a majority of them having factories in UP.

The combined mcap of these top sugar manufacturers has jumped more than 3x since March 2020, against 72 per cent rally in the benchmark BSE Sensex during the period.

Business Standard sample closed Friday with a combined mcap of ₹ 31,600 crore, against ₹ 10,000 crore at the end of March last year.

Analysts expect the sugar rally to resume after a brief hiatus, as the cut in export subsidy will have no material impact on the sugar companies´ realisations -price that they get for every kilogram (kg) of sugar sold -or their margins.

“ A subsidy cut of 32 per cent on sugar exports is not expected to impact export realisations, as higher global sugar prices and a weaker rupee are expected to offset the reduction in subsidy.

During the period October 2020April 2021, global white sugar prices have risen sharply by 18 per cent and the Indian rupee weakened by 1.5 per cent onyear,” says Hetal Gandhi, director, CRISIL Research.