SP Win Makes Sugar Stocks Sweeter

All eyes were on the Uttar Pradesh (UP) election results and their impact on the market. SP emerged as a winner with 223 seats (approximate) out of the total of 403 seats in the election. As a consequence, the market today witnessed huge volatility on the back of the results. We had clearly predicted this in our Mindshare report titled ‘Major Events Lined Up, Markets To Be Circumspect.’ The Sensex had a movement of more than 500 points while the Nifty moved approximately 150 points on an intraday basis.

Finally the broader market closed down more than a per cent with the Sensex closing at 17,173 while the Nifty closed at the level of 5,222. There were many stocks which were highly volatile. The sugar stocks, for example, saw wild swings as the sector is highly related to Uttar Pradesh. 

Uttar Pradesh is one of the largest sugarcane producers and also one of the biggest producers of sugar. The sugar stocks in early trade were trading higher in the green zone but finally saw heavy profit booking leading to a deep fall among the stocks. The stocks corrected in the range of 1 to 8 per cent.

Even in our Flash News (Vol 28, No 7) we had said that the general consensus report stated that SP may emerge as the single-largest party and the Congress may support them to rout the BSP. Investors should understand that the market was expecting SP to emerge as a winner, which would be in turn benefit the sugar companies going ahead. This is evident from the fact that many of the stocks were up significantly in the last 10 days. However, today it took heavy profit booking. 

Movement Of Sugar Stocks In Last 10 Days

Company	Price On 05/02/2012	Price On 22/02/2012	% Change
Bajaj Hindusthan	36.25	34.65	4.62
Dwarikesh Sugar	44	40.2	9.45
Triveni Eng	19.05	18.95	0.53
Balrampur Chini	53.9	51.85	3.95
Dhampur Sugar	42.05	39.1	7.54
Shree Renuka Sugars	38.8	37.45	3.60

Company	Today’s Close 06/02/2012	Previous Day’s Close 06/02/2012	% Change
Bajaj Hindusthan	33.4	36.25	-7.86
Dwarikesh Sugar	41.5	44	-5.68
Triveni Eng	18.2	19.05	-4.46
Balrampur Chini	51.5	53.9	-4.45
Dhampur Sugar	39.35	42.05	-6.42
Shree Renuka Sugars	36.5	38.8	-5.93

Vivek Saraogi, Managing Director, Balrampur Chini today expressed his view on a business channel and said that he expected some positives in the sector going ahead as there could be favorable business policies in the offing. The sugar producers remain hopeful as they expect the government to relax norms for land acquisitions, etc.  

The emergence of the SP as a winner is a positive for the sector. Having said that, one should not blindly invest in the sugar stocks as they have internal issues like high debt, sustenance of margins, etc. One should check the fundamentals of the company before investing in them. We believe today’s fall in the sugar stock was due to profit booking and the market is discounting the same.