Sugar Stocks Enter Overbought Zone after Recent Price Surge

Sugar is a volatile commodity; its price can fluctuate rapidly. The fickleness of the sugar market hangs on the global sugar supply and demand balance and vice versa. This became quite apparent in the last few days when sugar stocks across the world witnessed a surge of up to 10% after a report by the world's largest sugar trader, Alvean, stated the possibility of a year of sugar shortages.

As per the report, the global sugar deficit is expected to widen to 1.5 million tonnes in 2023/24, from 800,000 tonnes in 2022/23. It highlights that India is likely to be the prime reason for the deficit, with production predications to drop by 10%.

Brazil will emerge as the single major sugar producer to increase production in 2023/24, but output is still expected to be below the five-year average.

The report forecasts that global sugar prices will remain high in 2023/24, with the ICE New York white sugar futures contract forecast to average $19.50 per tonne.

The sugar shortage is likely to have several effects on consumers and businesses, including higher food costs and increased pressure on biofuel production. 

Effect on the stock market

Propelled by the report forecast, sugar stocks in India saw a surge in their share price in the past few days. Some of the top gainers in the sugar sector include:

• Avadh Sugar & Energy
  

Over the last five trading sessions, the stock price has surged by over 14% on the NSE. It was trading 1.63% lower at INR 662.40 per share on 7^th September 2023.

AVASUG is an India-based company is involved in production as well as sale of sugar, molasses, bagasse, ethanol, and bio-compost. The company has a sugar production capacity of 31,200 tonnes per day (TCD) and is one of the largest sugar producers in India.

As per REFINITIV, ICICI Direct has a Buy rating on the stock with a target price of Rs 750, which indicates an upside potential of 11.38% over its previous closing price.

As per the daily price chart of Avadh Sugar shown below, the stock has entered overbought zone after the recent surge in share price (Relative Strength Index (RSI) at ~73.169).

(Avadh Sugar Daily Technical Chart, Source: REFINITIV)

• Shree Renuka Sugars Ltd

Over the past 5 days, Shree Renuka Sugars’ share price has risen by 13.3% on the National Stock Exchange (NSE) of India. It was trading at INR 53.10 on 7th September 2023.

One of the world’s largest sugar producers, SRSL is an Indian multinational agribusiness and bio-energy corporation. It can produce more than 7 million tonnes per annum. The company also produces ethanol, power, and organic manure.

As per the price chart of Renuka Sugar, RSI is showing a reading of ~71.67, an overbought zone.

(Renuka Sugar Daily Technical Chart, Source: REFINITIV)

• Dalmia Bharat Sugar and Industries Ltd

The company’s sugar price has jumped by over 15% in the last 5 days, on NSE. The stock was spotted trading at INR 431.45 on 7th September 2023.

DBSIL is a part of the Dalmia Bharat Group, one of the India’s largest conglomerates. Headquartered in New Delhi, the company has a sugar production capacity of 37,150 tonnes per day (TCD) and is one of the largest sugar producers in India.

The price chart of Dalmia Bharat shows a RSI reading of ~82.77, which is deeply overbought zone.

(Dalmia Bharat Sugar and Industries Daily Technical Chart, Source: REFINITIV)

• E I D-Parry (India) Ltd

Listed on the National Stock Exchange, the company stock saw an increase of about 9% in its price in the past five days. It was trading at INR 520.20, down ~0.39%, on 7th September 2023.

A part of the Murugappa Group, E I D-Parry has a sugar production capacity of 2.4 million tonnes per annum. The firm also produces ethanol, power, and organic manure.

As per REFINITIV, analysts maintain a Strong Buy rating on the stock with a consensus price target of INR 621, depicting an upside potential of 18.90% over its previous closing price.

However, like the other sugar stocks mentioned above, E I D-Parry has also entered an overbought zone with a RSI reading of ~75.04 on the daily chart.

(E I D-Parry (India) Ltd Daily Technical Chart, Source: REFINITIV)

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