We have witnessed a rally in sugar sector on the back of strong demand emanating from Domestic markets. Internationally also we have a good gap between supply and demand. Sugar stocks are trading at new year’s high but still offer good investment opportunities. Going further India may have to import 4-5 mn tones of raw sugar in SY10E to meet the domestic demand. The shortage of sugar will result in phenomenal growth in profitablility of sugar companies which have access to sugarcane stocks or are able to import raw sugar. The effect of such growth may take a quarter or two to reflect in numbers. Sugar stocks made a high in the mid of 2006 and since then declined, the trend has now changed and we expect sugar stocks to scale back to similar valuations in the next couple of months. Due to increased capacities and bigger size of businesses this means much higher share price targets than those achieved by these companies in 2006 We are bullish on the sector and suggest buying stocks like Balrampur chini, Bajaj Hindustan, Shree Renuka Sugars etc.
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