Sunday, January 20, 2013
Indian Sugar Prices Monthly Chart
We like cyclical nature of any industry because being once you understand duration of up and down turn of that industry's cycle and figure out when to buy it you can make 5-10 baggar type of returns. When times are bad every Analyst/Fund Manager ignore the sector but cycle always turns and same Analysts and Fund Managers want to jump when they see that they have missed big opportunity.
Over last few months we have been trying to understand Indian Sugar Stocks when we saw majority of promoters buying from market and increasing their stake. Remember sugar stocks peaked in beginning of 2006 and now even leading sugar companies - Bajaj Hind, Balrampur Chini, Dhampur Sugar etc. are available at 70-80% discount to 2006 peaks that too after 7 years :-). Currently, Sugar sector is not fancied because of Govt. restrictions like 10% PDS levy, Release mechanism, High Sugar Can pricing policy of Center/States etc. However, When we look at sugar stocks all the negatives are currently priced in and once sugar prices start up trend we will see every issue getting resolved. So, our next task is to figure out when can we expect sugar prices to rise.
We checked Indian sugar stocks data over last 25-30 years. Last peak stock prices were in Apr 2006 and before that peak stock prices were in Dec 1994 so we see that they took 10-11 years from peak to peak. . We note bottom happens at the end of 7-8 years and next 3 years stock rise. If this trend repeats we may see bottom in Sugar stocks this year in 2013 or next year 2014 and major peak in 2016 or 2017.
We also checked US sugar prices over last 100 years. We note that US Sugar prices have risen every 5 years - Last Feb 2011 before that in Feb 2006 before that in Oct 2000 before that in Jan 1995 before that in Mar 1990 and so on. So most likely they will go up by 2016. This data also suggest we may see rise in Sugar stocks by 2016.
We finally went through NCDEX Indian spot prices of Sugar ex. Kanpur and we attach monthly chart for the same. (Data courtsey of ncdex.com)
If we see above historical chart of Indian Sugar prices we can see Indian Sugar prices started rising from July 2008 prices of 15-16/kg to a level of Rs. 44/kg in Jan 2010. They are consolidating now and if we draw trend line connecting July 2008 and March 2012 lows we see that Prices may stabilize around 33-34/kg in near future for some months. 2 indicators we follow CCI and Trend Indicator suggest prices may go down but because rising trend line support they may NOT fall in major way so looks like we may see short ranged prices for few months before starting fresh uptrend once it touch trend line.
Safest strategy could be buying sugar sector stocks once sugar prices cross 44/k.g. Moment 44/kg is crossed we will be sure of new uptrend in Sugar stocks. We expect that to happen sometime in second half of 2013. Lets keep tracking.