Sugar Stocks Surge with Ethanol Production Boost

India's sugar stocks have experienced a remarkable surge following the government's recent decision to lift all restrictions on ethanol production from sugarcane. Notable companies such as Shree Renuka Sugars, Balrampur Chini Mills, and others saw their stock prices rise by as much as 15% intraday, signaling positive investor sentiment.

According to the Union Ministry of Consumer Affairs, Food & Public Distribution, starting from November 1, 2025, sugar mills and distilleries will be allowed to produce ethanol without any quantitative limitations. This policy shift aims to enhance the domestic availability of sugar while also supporting India's ambitious goal to increase ethanol blending in petrol to 20% by the 2025-26 fiscal year.

The move comes at a time when the world's second-largest sugar producer had previously restricted ethanol production due to declining sugarcane supplies. However, with ample monsoon rains over the past two years, sugarcane cultivation has expanded, promising a significant increase in supplies for the upcoming season.

Industry experts are optimistic about this development. A sugar miller from Maharashtra welcomed the decision but suggested that the government should also consider raising the ethanol procurement price to benefit farmers. According to Seema Srivastava, a senior research analyst, this change empowers sugar firms to maximize their ethanol production capacity, capitalizing on favorable crop conditions.

Enhanced profitability is expected as sugar mills can now divert more cane juice or molasses to ethanol production, which offers better returns compared to traditional sugar sales. This optimistic outlook has led to predictions of a sustained rally in sugar stocks, driven by improved margins and potential growth in the sector.

Ruchit Jain, vice president at Motilal Oswal Financial Services, attributes the rally to high trading volumes and positive market momentum. He notes that the stocks had settled in a narrow range recently, making this favorable news particularly impactful.

Osho Krishan, a senior analyst at Angel One, emphasizes that until now, India's sugar sector had been stagnating, but the recent ethanol policy has sparked renewed interest. While he anticipates continued upward momentum, he advises investors to practice sound risk management and focus on individual stock performance.