Sugar stocks crash: Why share prices fell sharply today — Dealer stock limit news impact decoded

Prices of sugar stocks crashed today after the government halved holding limit for dealers from 4,000 quintals to 2,000 quintals for the period between 15 September to 30 November as a way to get a grasp on rising retail prices of the commodity.

Dwarikesh Sugar was down 6.23% at ₹49.19, at time of writing, followed by Ponni Sugars, which lost 6.09% to settle at ₹378.80, and Triveni Engineering ( ₹278), Uttam Sugar ( ₹296.40), Kesar Enterprises ( ₹9.89) and Bannari Amman ( ₹3,790), which each lost over 5%, according to BSE data.

Top gainers were Shree Hanuman (up 0.7%) at ₹4.28, and Davangere Sugar (up 0.5%) at ₹2.09, as per the market data. However, the overall sector was firmly in the red. Balrampur Chini was trading down 3.77% to ₹668.90, Shree Renuka Sugars was down 2.69% to ₹24.22, Mawana Sugars was down 4.50% to ₹142.30, and Dalmia Bharat Sugar and Industries down 3.61% to ₹467.35.

Why did sugar stocks crash today?

The central government today cut stock holding limit for sugar dealers by 50% from 4,000 quintals to 2,000 quintals “at anytime, anywhere in the country”. Further, a dealer cannot hold any stock for more than 30 days from the date of receipt.

This will be in effect between 15 September-30 November 30 and is the second such restriction after limit of 4,000 quintals was first imposed on 1 August. “The move is aimed at ensuring adequate availability of sugar in the domestic market and checking hoarding and speculative trading,” as per the food ministry.

Notably, it added that dealers in Kolkata and its extended metropolitan areas have been exempted from the lower 2,000 quintals limit due to consideration of “specific market requirements of the region”.

Dealer stock limit news impact decoded

News of stock limit for sugar dealers negatively impacted sugar stocks and sent the sector crashing into the red — far more than the broader markets. The Sensex was down 0.27%, at 76,747 and the Nifty fell 0.42% to 23,980.

The move also assumes significance as India’s retail inflation accelerated to 4.45% in July, driven by higher food and fuel prices. Sugar and confectionery have a combined weight of 1.36% in the new series of the Consumer Price Index.

The ministry said that it found instances of excess stockholding, non-disclosure and irregularities in the movement and sale of sugar during verification drives. Adding, “As a result of these interventions and improved market availability, ex-mill sugar prices have declined by around 20% in recent days. Retail prices have also started showing a downward trend and are expected to follow the reduction in ex-mill prices.”

Fortune India in a report also noted that the limits could possibly put more pressure on sugar prices and weigh on margins for sugar producers, causing stocks to take a hit as investors reassess their prospects from the sector.

Sugar prices remain high despite govt intervention

Notably, sugar prices in India have remained steadily over ₹60 per kg in most retail markets today, despite several measures from the Centre to tackle rise in cost of the commodity ahead of the festive season demand, data from the Consumer Affairs Ministry showed, PTI reported on Sunday.

Apart from tightening stockholding norms for dealers, the government has opened up imports and had earlier banned sugar exports. Moves came after sugar prices hit record highs in the world’s second-largest producer of the commodity, Bloomberg reported last week.

• On 31 August (Monday), the all-India average retail price stood at ₹63.28/kg, up 37% from ₹46.02 a year earlier, the data showed.
• Wholesale prices also rose 36.28% YoY to ₹58.40/kg, the PTI report added.
• Industry data, however, shows some cooling at the mill level; the ex-mill price of sugar in Maharashtra fell 30% to ₹45-46/kg on 1 September, from a peak of ₹67/kg on 18 August.

India typically sees large demand for sugar and subsequent rise in price for the commodity annually during the festive period as consumption peaks from late August through January for use in traditional sweets, processed foods and beverages, the Bloomberg report added.