There are two things you need to be aware of the sugar sector. The sugar industry has been seeing record output in the last few years although this year the output was slightly lower due to the drought in parts of Maharashtra, which is the second largest sugar producing state in India. But there is still glut of sugar in the Indian market and the inventories are large enough. So prices are low and that is keeping the stock prices under pressure considering that most of the sugar mills have huge sugarcane dues outstanding.

But there is also a positive side to this. The government has announced an Rs.6300 crore sugar subsidy program. Under this program, the sugar producers will be paid this as an export subsidy. This becomes essential because India’s cost of producing sugar is higher than Brazil, Australia and Thailand (the other major sugar producers). Hence the subsidy is essential to keep the Indian sugar competitive. This has led to some litigation in WTO but it should not be much of a problem. It will provide a ready export market for the sugar companies with the help of subsidies and that should boost profits. You can look at both these stocks with an upside target of 20-25% from current levels.