Why are sugar stocks trading higher today?

Shares of sugar companies witnessed strong buying on Tuesday even as the benchmark indices moved in a narrow range, thanks to a slew of positive developments. The Ministry of Consumer Affairs, Food and Public Distribution has announced a 100% incentive for sugar sacrificed for the production of ethanol in November. Adding to it, demand for sugar stock was also fuelled amid growing optimism that the petroleum ministry may increase the price of ethanol made out of cane juice. Besides, the uptrends in international sugar prices also boosted market sentiments.

Sugar stocks rallied up to 17% intraday on Tuesday, led by KCP Sugar and Uttam Sugar. Among individual stocks, KCP Sugar and Industries topped the chart in the sugar sector by surging 17%, while Uttam Sugar Mills, Mawana Sugars, and Shree Renuka Sugars jumped 6% each. Balrampur Chini, Bajaj Hindusthan, EID Parry, Dhampur Sugar, Sakthi Sugars also gained between 2-5%. In comparison, the BSE Sensex was trading 137 points higher at 60,703 levels.

In the recent past, sugar stocks have seen sustained rally amid hope that the government may allow additional sugar exports after evaluating the domestic production in January. The outlook for the sugar sector is also positive amid improved sugarcane crushing volume and favourable government regulation policies (sugarcane price/MSP/ethanol prices).

Last week, the Union Minister of State for Consumer Affairs, Food and Public Distribution, Sadhvi Niranjan Jyoti in a written reply to a question in Lok Sabha said that the central government has taken various steps to increase production and utilisation of ethanol. “Government of India has been implementing Ethanol Blended Petrol (EBP) Programme throughout the country wherein Oil Marketing Companies (OMCs) sell petrol blended with ethanol. Under the EBP Programme, the Government has fixed the target of 10% and 20% blending of ethanol with petrol by 2022 and 2025 respectively,” the minister informed the House on December 21.

In order to augment ethanol production capacity in the country, the government has notified Ethanol Interest Subvention Schemes, including extending financial assistance in the form of interest subvention at 6% per annum or 50% of rate of interest charged by banks/financial institutions whichever is lower for five years including one-year moratorium.

Besides, the government and oil marketing companies (OMCs) have fixed remunerative prices of ethanol produced from different feed-stocks for supply to OMCs. Adding to it, the Centre has amended the Industries (Development & Regulation) Act, 1951, to ensure free movement of ethanol in the country and has also reduced the Goods & Service Tax (GST) on ethanol meant for Ethanol Blended with Petrol (EBP) Programme from 18% to 5%.

As per the government data, the current ethanol production capacity in the country for ethanol blending with petrol and other uses is about 947 crore litres (which includes 619 crore litres of molasses based production capacity and 328 crore litres of grain based production capacity).