The Hindu Business Line : Sugar stocks slip on fear of Govt intervention on pricing

The recent pull back in sugar stock prices has been attributed to an underlying uneasiness that after cement, the Government may be looking to intervene in the sugar industry.

Shares of sugar companies — Balrampur Chini Mills Ltd and Bajaj Hindusthan — have witnessed some amount of weakness in the recent past. While the counter of Balrampur Chini ended almost 5.59 per cent lower on the BSE to close at Rs 165.55 on Tuesday, week on week the stock has lost ground by 13.21 per cent.

Shares of Bajaj Hindusthan ended at Rs 477.30, up 0.53 per cent, on the BSE but have moved down by 8.43 per cent week on week.

However, dismissing the fear as unrealistic, analysts aver that this is the best time to go bargain hunting.

According to Mr Jay Prakash Sinha, head of research, Kotak Securities, the weakness in sugar stocks is more in tandem with the mid-cap sector correction. He remains bullish on the sector.

Commenting on the probability of Government intervention, Mr Sinha said it would serve no purpose if prices were checked artificially as almost two thirds of sugar consumption is by companies.

Remains attractive

Claiming that the sector is governed more by international sugar prices, analysts maintain that if at all prices move down it would be in synchronisation with global prices. "In fact the sector is looking very attractive and there is a lot of fund interest," a senior analyst said reiterating his buy outlook.

A section of the market is of the view that if the Government does not intervene, there may very well be a run up in this sector stocks.

At present, many sugar companies are looking to ramp up production. India's production forecast for the crop year ending September 2006 has been pegged around 18-19 million tonnes.

According to sugar sector analysts, prices at mill level currently rule around Rs 19 per kg, with wholesale prices at around Rs 20.5 per kg and retail at Rs 21-22.

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