Mittal believes that sugar prices in India may have bottomed out. He expects sugar prices to recover to Rs 1600-1700 per quintal levels.

Sudakshina Unnikrishnan believes that the global sugar price outlook continues to be weak. She adds that the outlook for cotton is positive led by demand from China and India.

Excerpts from CNBC-TV18's exclusive interview with Ashok Mittal and Sudakshina Unnikrishnan:
 
What is your sense of sugar right now because stocks have bounced back a little but everybody seems quite uncertain about where sugar prices are headed?

Mittal: The basic reason behind sugar stocks seeing a downfall as far as the sugar prices are concerned has been that prices have fallen continuously in the last about 9-10 months or so. This is because of higher crop expectations and higher production expectations in India as well as in the global markets.

We have seen prices coming down a lot, but at the same time, sugar prices look as if they are almost at the bottom level because most of the sugar mills are not ready to sell below the Rs 1350-1400 levels in India.

In Maharashtra, sugar mills have more or less adopted this strategy, which we expect being adopted by companies in Uttar Pradesh and other places as well. If you look at the sugar prices, we are close to the bottom, because now, no more changes can happen as far as the production is concerned.

If you correlate with the sugar stock prices, the downside should be limited in those prices too, because if you see a little bit of correlation with crude and ethanol, lots of capacities have been created and I do expect that crude oil prices will now be bouncing back again. So sugar stocks also should be now moving upside because they have been hammered like anything. We do not see sugar prices to fall much from the current levels and the same can be said for the sugar stocks as well.

At the same time, a small observation which we did is, when you look at the price change in terms of sugar versus the sugar stocks, there has not been a very high level of correlation directly because when we talk about stocks, there are many other factors too, which impact the prices.

The impact on sugar stocks in comparison to the direct change in the price of the commodity has not been very high. They have been moving along with the sugar prices on a medium term basis, not on a very short-term basis of say 15-20 days. In three to six months, they definitely tend to move as per the sugar prices.

What is the global picture like and do you expect prices to recover a whole lot? Is it lucrative for a company to look at exporting sugar at this point?

Unnikrishnan: The global picture continues to look rather weak for sugar prices; the big reason being the strong rebound in the global slide. The last strong rally in global prices saw many different factors in place to support sugar.

There were strong speculative sentiments, as well as lot of speculative money pouring into the sugar futures. This year we are seeing a strong rebound in supply from India, Brazil, Australia, and Thailand. All of that shows a pretty amply supplied sugar market.

That is putting a lot of bearish pressure on prices, which is why we have seen a lot of range trading happening for the last few months. If there is any sort of price risk, it is to the downside from here, possibly not too much risk further down, but there is certainly some further downside risk.

In the domestic market, even if you do expect it to pull back, how much might that be and since you do track or did track the stock market, what quantum difference does it make to some of the sugar stocks?

Mittal: If you look at the sugar stocks and the kind of price movement that happened there, you will notice that the commodity was at about Rs 2000 in Indian prices, from where, it has come to Rs 1400, which means Rs 600 downside per quintal.

On Rs 2600, it is about 30 per cent or so, whereas stocks have fallen more than that - about 50% in the last couple of months. So the same kind of movement will be expected when the sugar prices bounce back. From 1350-1400 kinds of levels, we expect sugar to go back to between Rs 1600 and Rs 1700 per quintal range. If that goes up by 20 per cent, I will definitely expect the sugar stocks to move up more than 20 per cent - might be about 25-30 per cent from these levels.

Definitely, a lot of factors that remain in general or related to market sentiments also affect the sugar prices, but what comes out net-net is that the downside looks quite limited as far as sugar prices are concerned; the same goes for the sugar stocks as well.

So people can try out on these things because almost all the news related to overproduction in the world markets as well as in the Indian market has been discounted and I do not see any reason why the sugar prices will fall by another 10 per cent or so; it is not likely to happen, hence the chances are good.

The government was expecting to export about 9 lakh tonne from India, whereas only about 90,000 tonne actually did happen but we should also see that this 9 lakh tonne is also about 4.5-5 per cent of the total production, which we have. So it is not a very significant amount as far as the exports are concerned. Even if exports do not happen, or even if it happens to the extent of 9 lakh tonnes, it will not affect the overall scenario to a larger extent.

What is the call on cotton from here on, because that has a material impact on textile stocks out here?
 
Unnikrishnan: I think the outlook for cotton is quite positive; the biggest users in the world are basically China, India and Pakistan - all of who continue to show very strong consumption trend. China's textile industry has been fueling increased cotton demand; its cotton imports have been rising very strongly and I think, the only downside to the fact is that we have a pretty big global cotton stock and cotton is among those agricultural commodities, which are most vulnerable to any sort of change in the macro-economic sentiment.

Overall, the supply and demand fundamentals in the global bases for cotton are very supportive. We would expect prices to rise strongly; India's huge excess has been rising very strongly and these trends seem to suggest that going forward the demand will continue to be very strong. That should definitely give some upside potential to prices.  

What are you expecting from rubber, because it will have an impact on tyre stocks and you actually see prices moving a lot higher this financial year?

Mittal: In November-December, we have seen the rubber prices moving up very fast - they went above Rs 112 or so; this was almost a lifetime high as far as the Indian rubber markets are concerned. In the futures segment too, after that there has been not enough correction happening to the rubber prices.

We import close to 10 per cent of the value in terms of the rubber imports, whereas total production in India is about 6-7 lakh tonnes per year. The prices are expected to get a good amount of support here, as there is good demand coming up from almost all the sectors; rubber companies contribute about 55-60 per cent to the total rubber demand in India and have negative correlation with the spot rubber prices.

So, we expect rubber prices to go up, but at the same time in the last eight to ten months, we have seen that the correlation is not very high; in sugar too, the correlation is not very high. So even if rubber prices go up by about 8-10 per cent, they will not impact the tyre companies very significantly.

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