Sugar stocks surged on Thursday, continuing their rally on expectations that El Nino conditions will hurt output and drive prices of the sweetener.
The day's surge was led by a near 19% spike in the shares of Magadh Sugar & Energy Ltd., while Dalmia Bharat Sugar & Industries Ltd., Dhampur Sugar Mills Ltd., and Avadh Sugar & Energy Ltd. jumped more than 10%.
El Nino conditions are expected to affect global output in key sugar-producing countries like India. Thailand, one of the key contributors to the global drought, is already battling dry weather. The distribution of monsoon rains in India has also been uneven.
DAM Capital's View
UP sugar companies with higher sustainable sugar volume and higher realisation are expected to benefit from lower sugarcane yields in Maharashtra and Karnataka, DAM Capital said in Sept. 13 report.
"We believe fast developing El Nino conditions would further hamper sugar production in these states and keep domestic sugar prices above Rs 37 per kg," it said.
The brokerage initiated coverage on four stocks with a buy rating.
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