Market

Make hay while the sun shines! This sector delivers 3x returns in last 3 months

Updated : June 29, 2020 07:46 PM IST

The highest growth was delivered by Shree Renuka Sugars, which zoomed 267 percent since its March low levels.

In the stock market, commodities is considered to be high cyclical space that has capability to churn over 2x returns in a small period of time frame. Sugar sector falls under this category, and ever since the nationwide lockdown was announced in March, the sector has delivered a whopping of about 3x returns to its shareholders in just three months time.

The highest growth was delivered by Shree Renuka Sugars, which zoomed 267 percent since its March low levels. In fact, majority of the sugar stocks have given over 70 percent returns to its shareholders.

There are various reasons behind the surge in the sugar stocks. JM Financial in its report noted that government measures played a big role in providing steady profitability to sugar companies. Minimum selling price (MSP), monthly release orders and robust ethanol prices are the main growth factors.

During this time, the exports also picked up the pace again as global prices recovered. There have been media reports recently about the government considering an MSP hike of up to Rs 2/kg (currently Rs 31/kg), which has boosted sales momentum and domestic prices, the report added.

According the brokerage, there was a fall in demand due to a halt n institutional buying. However, exports slowed down in March-April 20 as the global prices dropped almost 30 percent, only to recover in the past 4 weeks, boosting exports momentum. The industry now expects 5.2 million tonne of sugar exports given the export subsidy of Rs 10.4/kg and active regulatory help by the government.

"We estimate India sugar production to jump back to 31.3 million tonne as the sugarcane area is likely to increase in Maharashtra/Karnataka on a robust monsoon in 2019 (record reservoir levels) amid strong profitability," said the brokerage further.

Even after all the aforementioned statements, JM Financial continues to remain cautious on the sector. It maintained its 'hold' stance on Balrampur Chini Mills at Rs 160 and 'buy' stance on EID Parry, saying that its current price implies 80 percent discount to value of its stake in Coromandel International.

Make hay while the sun shines! This sector delivers 3x returns in last 3 months

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