Sugar is another sector that has been caught in a government policy flip-flop. While the government says it would review its export ban policy in October, sugar is unlikely to become the sweet flavour of the stock market again, believe experts.
The government had imposed a ban on sugar exports till April 2007, in order to keep a tab on sugar prices as well as on domestic consumption. If Farm Minister, Sharad Pawar is to be believed, this situation is likely to be reviewed in the beginning of the new crushing season, which is October.
Slight relief also came earlier this week, when a food ministry statement said sugar stocks that were taken out of the then exempt mills before June 22, and were in transit as the ban was broadened, could now be exported.
Trade officials said this applied to about 45,000 tonnes of sugar. Analysts say smaller and mid-sized companies may still be impacted, if the ban is not lifted totally by October. Sugar is definitely soured now by being caught in midst of an uncertain policy. Also, sugar stocks have been the worst performers as far as most other midcaps go.
Keen industry watchers like Investment advisor, S P Tulsian believe that this calendar year is unlikely to see a change in the Policy since the new crushing season itself will begin by October end.
He says, "The government will review the policy after monitoring the production status around the new crushing season. But we only expect some news to come in by January. At this point, I believe that there is reasonable demand, however since the festive season is approaching, prices could increase by Rs 0.50 per kg."
Experts believe that even in such a scenario, sugar companies that have larger production still stand to gain
Deven Choksey of K R Choksey Securities says, "Sugar mills with a larger production base will not be impacted much since once capacity expansion comes in these companies will be able to meet both export and domestic demand. Companies like Bajaj Hindustan and Balrampur Chini will have new capacities and thus higher volumes."
Meanwhile, Ethanol could act as the only trigger for sugar now, since the government is mulling a price revision upward, which could benefit sugar companies.
However, the question looming large is whether sugar will see its hay days again, will it be part of another frenzy in the stock market? Experts do not sound optimistic on this.
Tulsian believes that sugar stocks have already taken a huge beating and that they are unlikely to reclaim their previous tops.
He says, "All the beating that had to take place in these stocks has happened. Most sugar and tea stocks fall in the midcap segment, which has fallen the most. So I do not see the same frenzy again. However, sugar stocks like Balrampur Chini and Bajaj Hindustan should be held as they and few others could still lend a 30% return in the coming 6 months."
Choksey also believes that the earlier excitement on sugar was demand related, but even now one can expect decent returns in stocks like Bajaj Hindustan, Balrampur Chini, Dhampur Sugar and EID Parry.
So while the bull run in sugar might just remain a sweet memory now, the verdict from experts is to stick to bigger names. The reason: Big companies will bear less of an impact during policy changes on the back of capacity expansion.
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