More triggers needed for sugar rally; prices may remain under pressure

Therefore investors, who wish to take an exposure to the sector, could look at companies with a stronger balance sheet and lower cost of sugar production

Stock prices of sugar companies have gained sharply after the government’s decision to hike ethanol price, a few days ago. Balrampur Chini, Bajaj Hindusthan, Shree Renuka Sugar, and Dhampur Sugar have all risen 13-57 per cent since the move. The price hike for a by-product (ethanol) brought some relief to a sector struggling with cost pressures, even as sugar realisations are trending down. 

The average cost of production of sugar in the country is about Rs 35 a kg, while sugar prices are trading much lower at about Rs 31. Further, after 32 million tonnes (mt) sugar production in Sugar Year