Select sugar stocks have started reacting to the new developments in the industry. With cane production reporting a fall in the current crushing season, there has been a sustained upswing in the prices of sugar and molasses (a by-product of the sugar extraction process), thereby benefiting sugar companies.The price of free-sale sugar is a major issue as it is a politically sensitive commodity. But in order to buttress sugar stocks and check rising prices, imports were inevitable, and the threat of imported sugar reaching the domestic market dampened the impact on these stocks as imported sugar does not carry the burden of any duties and taxes. The situation was made worse by the fact that international prices of sugar have dipped by 15-20 per cent in the last few months.
But, now the situation seems to have reversed and imported sugar carries a sales tax of 10 per cent, thus, tilting things slightly in favour of domestic manufacturers.
The stock markets have responded to this development and bid up stocks of Dhampur Sugar and Thiroo Arooran Sugars. These companies, along with other big ones like Balrampur Chini Mills, already have substantial capacities in place part from the capacities which are likely to be commissioned soon. This means that these companies will be able to market the entire production from these new capacities in the free market at slightly better prices.
HLL down on technical correction
Despite the fact that the Securities and Exchange Board of India (Sebi) had decided to proceed against Hindustan Lever, the stock market had initially responded positively to the HLL stock at the beginning of trading on Thursday, pushing it beyond Rs 1,600 before it fell back a little on a day that saw other pivotals like Reliance take a worse beating.
There were a few points which the market felt were wrong about the episode. First of all, this development seemed to send the wrong signal to the market in general and to the already-jittery foreign investors in particular that Sebi is seen to be targeting a multinational company (MNC) just before the swearing in of a pro-swadeshi government. The argument as far as market sentiment goes (some short-term opportunism notwithstanding) is that the company has created a lot of shareholder value and has consistently put in a superior financial performance, with above average returns and a rising incremental return on capital. A similar sentiment prevailed at the time when the news first broke about the insider-trading allegations on the part of the HLL management. The stock has risen by 35-40 per cent since then, indicating the market's view on the matter.
Otherwise, the fall in the HLL stock (0.9 per cent) has to be considered in perspective as the entire market has been on the decline in the last few days .
SBI dipped by 1.2 per cent, Reliane by 2.5 per cent, ACC by 3 per cent . Besides, the stock has been on an uptrend since its results were announced in early February and has appreciated by at least 25 per cent without much of a correction. Hence, a correction was imminent in any case.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
