When the market was crumbling under the pressure of external headwinds early this calendar, sugar stocks were busy scripting a massive turnaround. In the first three months of the year, stocks of sugar producers have soared up to 82 per cent on the back of declining global production and rising global prices. Many have discounted this rally as a one-off traders' rally and that things will turn for the worst for these stocks soon. But Mehraboon Irani of Nirmal Bang Securities begs to differ...
"I personally feel 4-5 per cent of your portfolio money should go into the sugar stocks, because I have a very high conviction that the cycle for sugar has started," he said.
"In the case of sugar, if you ask most people, and that includes me, would say they will ultimately turn, and you do not know whether the rally will sustain," he said.
In that backdrop, sugar prices climbed to their 17-month high in international futures market in Chicago. "I personally feel over the next one year there could be a shortfall as far as India goes in terms of sugar production. So the cycle has really turned for the sugar sector. The stocks have gone up, and can go up further," Irani said. Globally though, things have changed a little bit in the past two weeks. Improving weather conditions and a falling real have raised production numbers," said Mayuresh Joshi, Fund Manager, Angel Broking. "The sugar cycle moves in two-year on-off cycle. So if one really expects the on-cycle, which is a positive cycle for the sugar industry, to start from the coming crushing season, then any substantial movement in terms of the end-realisation prices for sugar is definitely going to improve balance sheets of sugar companies," he said.