Sugar shares gained over 2 percent in early trade on Thursday after the Union government approved a subsidy of Rs 3,500 crore to sugar mills for the export of 60 lakh tonnes of the sweetener during the ongoing marketing year 2020-21.

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The stocks of Dhampur Sugar Mills, Balrampur Chini Mills, Bajaj Hindusthan Sugar, Eid-Parry (India), Sakthi Sugars, Shree Renuka Sugars, among others traded over 2 percent higher on the BSE.

Union Minister Prakash Javadekar said during a media briefing on Wednesday, “Cabinet has taken the decision to help farmers directly by depositing money of subsidy into their accounts. The subsidy will be given on 60 lakh tonnes of sugar exports at the rate of Rs 6,000 per tonne.”

The minister said both “sugar industry as well as sugarcane farmers are in crisis” because of high domestic production at 310 lakh tonnes as against the annual demand of 260 lakh tonnes.

In the previous marketing year 2019-20 (October-September), the government provided an export subsidy of Rs 10,448 per tonne, costing the exchequer Rs 6,268 crore.

Sugar mills managed to export 5.7 million tonnes of sugar as against the mandatory quota of 6 million tonnes set for the 2019-20 season (October-September), according to official data.

Speaking to CNBC-TV18, Vivek Saraogi, MD, Balrampur Chini Mills said that he hopes the exports of sugar from India to rise going ahead. It would be easy to sell the sugar in global markets as the world needs Indian sugar due to shortages.

JM Financial, in a note, says that the subsidy announcement removes the uncertainty, while the quantum is modest and is delicately balanced.

The announcement validates the risk of government policies that can impact sector sentiment. The government has not yet approved the much-awaited increase in MSP of sugar and even the UP government is yet to announce the state advised price of sugarcane for the current season.

“There is a possibility of a correction in global sugar prices as India exports hit the world market, however, maintain our cautious view on the industry due to structural oversupply scenario,” JM Financial said.

The brokerage house maintains a hold on Balrampur Chini with a target at Rs 180 per share and a buy rating on EID Parry with a target at Rs 370 per share.

Meanwhile, Keshav Lahoti, Associate Equity Analyst, Angel Broking is of the view that the export of sugar by India can lead to a correction in the international sugar prices.

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(Edited by : Ajay Vaishnav)