Sugar stocks rally up to 11% after govt halves stock limit to 15 days; Bajaj Hindusthan, Ponni Sugars lead

Shares of sugar companies saw strong buying momentum on Thursday after the government tightened stockholding norms for bulk consumers, seeking to increase market availability and contain a recent surge in sugar prices.

Boosted by the development, Bajaj Hindusthan Sugar advanced 6.47%, while Ponni Sugars (Erode) gained over 11%.

In a similar trend, Magadh Sugar & Energy jumped 8.69%, Dwarikesh Sugar rose 7.37%, Indian Sucrose climbed 6.53% and Avadh Sugar & Energy gained 6.24%. Balrampur Chini Mills, Dalmia Bharat Sugar and Mawana Sugars were also trading higher, in the range of 3-5%.

Bulk sugar stockholding capped at 15 days

The broad-based rally came after the Ministry of Consumer Affairs, Food and Public Distribution notified on Wednesday that it had reduced the permissible sugar inventory for bulk consumers to 15 days from the earlier limit of 30 days. The revised restriction will be effective from September 1 to November 30, 2026.

Under the new order, bulk consumers using more than 10 metric tonnes of sugar a month as a raw material for production, consumption or other use will not be allowed to maintain sugar stocks exceeding their 15-day requirement.

Government institutions, including those belonging to the Centre, states, Union Territories and local bodies, have been exempted from the restriction.

The government's move comes against the backdrop of a sharp increase in domestic sugar prices. Sugar prices have risen around 10% in August, prompting the Centre to tighten inventory restrictions in an effort to prevent excessive stockpiling and improve availability for industrial consumers.

The latest order follows the government's decision last month to cap sugar inventories held by dealers at 30 days. The move was aimed at ensuring adequate supplies and preventing traders from accumulating excessive stocks amid rising prices.

For sugar manufacturers, however, the rise in realisations has provided a much-needed boost at a time when the industry continues to contend with elevated input costs.

Elara Securities said the rise in sugar prices has come at an opportune time for the industry, helping offset input-cost pressure in both sugar and distillery businesses in FY27.

"Current sugar prices are hovering around ₹46 per kg ex-mill, which makes manufacturing of sugar the most viable option among various products and by-products of sugarcane," the brokerage said.

Ethanol policy key trigger

The brokerage expects the firmer sugar price environment to support profitability for sugar mills, although the outlook could be influenced by the government's policy on the diversion of sugarcane towards ethanol in the next crushing season.

According to Elara Securities, sugarcane diversion towards ethanol could be restricted in the next crushing season, with diversion potentially limited to C-heavy molasses-based ethanol. Such a move could result in higher sugar production and lower ethanol output.

While increased sugar availability could eventually put some pressure on prices, the brokerage believes the higher starting price level could still leave sugar mills with a favourable overall outcome.

"While this may lead to some sort of correction in sugar prices in the future, since the base price of sugar has moved up firmly, the net outcome will be positive for sugar mills," the brokerage said.

The higher realisations could also encourage mills to bring forward their sugarcane procurement and sowing plans to take advantage of favourable prices.

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