Sugar stocks were in for a good run at the markets on Friday owing to the Union Government announcing partial decontrol in the sector on Thursday. This move implies that the Centre will no longer force mills to sell sugar to the Government at a discount and won’t limit the amount that they can sell in the open market resulting in improved cash flows of millers.
Scrips of sugar companies such as Thiru Arooran Sugars jumped 20 per cent to close at Rs 67.50 on the BSE. Oudh Sugar Mills closed at Rs 22.40, up 15.46 per cent and Uttam Sugar Mills surged 19.17 per cent up to end the day at Rs 22.70. The overall benchmark Sensex, however, continued to decline for a third consecutive day to close at 18,451, down 0.32 per cent from its previous close.
According to Gaurav Dua, Head of Research, ShareKhan, “The news of partial decontrol in the sugar industry is extremely positive for the industry which is why stocks have reacted well. This initial euphoria would sustain for a couple of days.
“However, retail investors should adopt a selective stock pick strategy now by using this bounce to exit low quality sugar stocks by booking profits and stay invested in the larger players going by size of their operations.”
The new policy move will help the industry save about Rs 2,650 crore annually while doubling the Government’s subsidy burden to Rs 5,300 crore.