Shares of sugar companies rose 20% for a second session on Monday, which was helped by heavy volume.

According to the PTI report, the government may consider increasing the sugar export quota for the current 2022-23 marketing year after reviewing domestic production in January.

Dalmia Bharat Sugar and Industries (Rs 440.55), Rajshree Sugar & Chemicals (Rs 66.70), Sakthi Sugars (Rs 34.55), Dhampure Specialty Sugars (Rs 34.80) and Simbhaoli Sugars (Rs 33.80) rose 20% on the BSE in intra-day trade.

Meanwhile, shares of Dhampur Sugar Mills, KCP Sugar & Industries, Ugar Sugar, Avadh Sugar, Mawana Sugars, KM Sugar Mills and Vishwaraj Sugar Industries rose between 10% and 19%. The S&P BSE Sensex rose 0.23% to 61,476.

Sugar is an agriculture-based industry vulnerable to the monsoon’s vagaries. Moreover, it faces a high level of government interference since sugar is necessary. Additionally, sugar is inherently capital-intensive, given the industry’s seasonal nature.

As a result, the government has taken a series of measures over the past few years that have changed the dynamics of the sugar industry. India Ratings and Research (Ind-Ra) said the introduction of the sugar minimum selling price in 2018 resolved the critical issue of fixing raw material prices and market-linked finished product prices, thereby reducing spread volatility in the sugar cycle.

“Additionally, export subsidies helped the industry export 7.1 tonnes in the 2021 Sugar Season (SS) (SS20: 5.9 tonnes), despite lower international prices and supporting domestic balance. High international prices despite subsidy not being extended after SS21 The record export of around 11.2 metric tons that could result in SS22, combined with sugarcane diversion, is enough to reduce the country’s stock levels significantly. While the export quota for SS23 has been reduced to 6 metric tons, increased cane transhipment will keep stocks in check and support sugar prices,” it added.

Due to higher cane yields, sugar production in India has been growing structurally over the past few years. Still, demand growth has remained modest at 1% to 2% per annum, outpacing consumption and resulting in high inventory levels.

“To help sugar companies manage stock levels, the government is focusing on the ethanol blending programme and bringing the timetable for 20% ethanol blending in gasoline from 2030 to 2025. Given the current blending rate of around 9%, the target is set to be low, given the short supply. The situation presents huge demand potential, and the government has been stimulating the sector,” the rating agency said.

In another development, the GST Council decided on Saturday to increase the tax on ethanol supplied to refineries for blending with motor spirit (petrol) to 18% from 5%.