Myiris.com: How to trade in sugar stocks now?

How to trade in sugar stocks now?

http://www.myiris.com/newsCentre/storyShow.php?fileR=20110203165239198&secID=fromnewsroom&secTitle=From%20the%20News%20Room&dir=2011/02/03

Sugar stocks rallied on Thursday after global sugar prices surge to 30-year high on concern deadly cyclone Yasi might hit Australia`s major cane plantations. Australia is world`s third biggest exporter of the commodity.

Shree Renuka Sugars (5.80%), DCM Shriram Industries (5.87%), Bajaj Hindusthan (4.01%), EID Parry India (3.83%), Triveni Engineering Industries (3.73%) Balrampur Chini Mills (2.78%) and Simbhaoli Sugars (1.21%) were the major gainers in the sugar space.

In an exclusive interview with Myiris.com, Prashanth Tapse, Sr. Research Analyst, Mehta Equities gave views on the sector. He has also provided trading strategy for stocks which is as follows:

Raw-sugar surged to the highest level in last three decades on rising concern on global supplies after crop losses in Australia and India. Sugar cane plantations in Australia, the third-largest exporter suffered damage in sugar crop after Cyclone Yasi cut through an area accounting for a third of output. ICE March raw sugar soared 1.35 cents or 4% to close at 35.31 cents per lb, the strongest settlement for the spot contract since November 1980, after hitting a session peak at 36.08 cents a lb. Prices for raw sugar, which is refined into the white sugar sold to consumers, have soared more than 70% over the past 4-5 months as demand crosses supplies chain in the global market. We have a positive outlook for the Sugar Industry in the short to medium term, based on the anticipated increase in the domestic sugar demand and a subsequent rise in sugar prices. We expect the sugar sector to outperform the market in the near term.

Stock specific trading strategy:

EID Parry India:

The level of Rs 225 will act as strong resistance level. Buy above this level with a target of Rs 264. Recent Q3 result exhibits strong growth reported a net profit of Rs 633.50 million (USD 13.90 million) for the quarter ended on Dec. 31, 2010, a near 70% decline as compared to the corresponding period of previous year. The company`s total income in the quarter under consideration rose by 16.10% to Rs 24,748.50 million as against Rs 21,316.40 million in the same period previous year.

Shree Renuka Sugars:

We are positive on the Brazilian operation which is well positioned to benefit from a strong rally in sugar prices. The refining segment has good long-term prospects as Asia will likely continue to drive consumption and remain an importer of raw sugar. Hence we recommend traders to ``Accumulate`` around Rs 80 -85 for a medium target of Rs 95 -100 from the current levels.

Bajaj Hindusthan:

Technically we expect the stock to consolidate at these levels or even test Rs 76 before taking any fresh upward move. Hence we advice traders avoid the counter. We will re-visit the counter as and when we get a buying signal.

DCM Shriram Industries:

DCM Shriram gained momentum on the back of rising concern on global supplies after crop losses in Australia sugar area. Technically the stock is in narrow range with no clear trend on charts. Hence, it is better to avoid this stock because lot of finer stocks available in Indian sugar counter. Any run-up in the stock could be used as exit option in the counter.

Balrampur Chini Mills:

Rs 78 acts as strong resistance level. Buy above this level with a target of Rs 88.

Simbhaoli Sugars:

Technically we expect the stock to consolidate at these levels or even test Rs 42 before taking any fresh upward move. Hence we advice traders avoid the counter.

Triveni Engineering Industries:

Investors with short-term perspective can consider buying the stock with a target of Rs 111. It is seen from the charts that it is about to break out at 97 and hence we advice traders to trade with a stop loss of Rs 93.50.

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