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Stocks

Sugar Stocks – The Multi Bagger of The Year!

Confectioners-Returns-Heat-Map-FY16.png

The consumer are facing the bitter price of sugar, but the investors are enjoying the flavor of the sweet commodity. When the market was grappling with industries like Steel, banks, Infrastructure, Textiles etc, the sugar industry has slowly been making a turn around.

For the current year the Sugar Industry has outperformed all other industries. If you had just 5% of your portfolio in Sugar stocks in June 2015, your sugar stocks would have covered for your all the portfolio’s returns (even if rest of 95% of your portfolio had 0% returns). Most of the sugar stocks are at least up by 100% compared to last year.

Confectioners Returns Heat Map FY16

The stocks of Dwarkesh Sugars and Upperganges Sugars have seen the most gain with an increase of 11x. Other companies like Rana Sugars, Dalmia Sugars, Ugar Sugars, Oudh Sugars, Uttam Sugars, Mawana Sugars are up  by 5 – 6 times. Relatively low gainers like Balrampur Chinni, Sakthi Sugars, Parry Sugars, Kotari Sugars, Thiru Sugars, Triveni Industries, Rajsree Sugars, KM sugars and Kesar Enterprises have all gained in the range of 2-3 times.

Sugar stocks which were trading at very very low prices are now the multibaggers of the year.

The sugar Industry is cyclical in nature with 3-4 years of surplus followed by 1-2 years of deficit. The turnaround story was mainly due to demand and supply gap of the commodity in domestic as well as international markets. The El Nino effect coupled with lower cultivation area of sugarcane lead to the shortage in the production of sugarcane. As the deficit increased the sugar prices shot up this year.

Read our complete analysis on Sugar Industry. 

Sugarm Spot Prices NCDEX FY-16

Sugar prices have increased from Rs 2200/ Quintal to the current level of Rs 3700/ Quintal. Even the international markets have shown the demand for the sugar. The below sugar futures graph on NASDAQ explains the same. The rallying sugar prices have allowed sugar companies to book more profits.

Sugar Spot Price NASDAQ FY16

The Sugar cycle has almost come to an end, in our opinion. With the good monsoons and new crop coming up in October, the market might see a higher supply of sugar and the prices might come down. In India, a recently applied 20% duty on exports is a dampener since the international price increase may not impact exports quite that much.

The high sugar prices also have seen more investment in the sector and might increase productivity further. The stock rally might last till the fag end of this year. Most of the sugar stocks have reached the 52 week high, and some have already peaked to their all time highs. We suggest a cautious approach, as we are likely to see a market correction.

(It would however be cruel to not participate. At best, one shouldn’t buy into the sector other than for ultra-short-term gains, and if holding, should consider booking out profits regularly)

But the fact remains: Sugar stocks are the multi baggers of the last year.

Disclosure: Analyst does not hold any of the stocks above. Capital Mind has added some of these stocks in the premium virtual portfolios. (Get Capital Mind Premium)