The sugar stocks slide deepened on Monday as shares of sugar companies fell up to 7 per cent after the government directed oil marketing companies to stop diverting sugar for ethanol production in the 2026/27 supply year. The latest ethanol tender excludes supplies made from sugarcane juice, sugar syrup and B-heavy molasses, a sugar-rich by-product of cane crushing, cutting off an important higher-margin outlet for mills.
In Monday’s trade, Bajaj Hindusthan Sugar led the losses, falling over 7 per cent, followed by Shree Renuka Industries, which declined more than 6 per cent. Balrampur Chini Mills dropped 4 per cent and Triveni Engineering and Industries fell over 3 per cent, while EID Parry and Dhampur Sugar shed over 2 per cent each. Some trackers put the day’s worst falls at 6.4 per cent for Shree Renuka Sugars and 6.21 per cent for Magadh Sugar, with Dwarikesh Sugar Industries down over 5 per cent.
The government’s decision restricts mills’ ability to shift sugarcane and molasses between sugar and ethanol production based on market conditions, potentially weighing on margins and returns from investments in ethanol capacity. The move aims to increase domestic sugar availability and ease prices that have reached record highs in India, the world’s largest sugar consumer.
Why the Sugar Stocks Slide Matters for Mills
The directive fundamentally alters the economics of sugar milling. For years, mills have balanced sugar and ethanol production to protect margins, diverting cane towards whichever outlet offered better returns. By barring ethanol made from sugarcane juice, sugar syrup and B-heavy molasses from the latest procurement tender, the government has removed that flexibility for the supply year beginning in November.
The tender, issued on 16 October by Bharat Petroleum Corporation on behalf of oil marketing companies, seeks bids for around 11 billion litres of ethanol to meet the requirement of blending 20 per cent ethanol in petrol. It also cut the incentive for maize-based ethanol, lowering the procurement price to Rs 68.86 per litre from Rs 71.86, signalling a broader recalibration of the blending programme’s economics.
Record Prices Behind the Sugar Stocks Slide
The decision reflects the government’s focus on safeguarding domestic food supplies amid concerns that weak rainfall in key producing states could affect sugar output, analysts from Motilal Oswal and Choice Broking said. Sugar prices have risen more than 10 per cent amid the festive season, raising concerns over near-term food price pressures before the main crushing season begins, said Siddhartha Khemka, head of research for wealth management at Motilal Oswal Financial Services.
India’s sugar demand typically rises between August and November as festivals such as Ganesh Chaturthi, Dussehra and Diwali drive consumption of sweets, biscuits and other confectionery products. Ahead of the festive season, the Centre reduced the period for which sugar dealers can hold stocks to 15 days and capped their holdings at 1,000 quintals. The restrictions, effective from 15 October to 30 November 2026, are intended to prevent hoarding and ensure supplies keep moving through the market.
What Comes Next After the Sugar Stocks Slide
For investors, the key question is whether the zero-diversion norm is a one-season emergency measure or the start of a structural shift. Mills that invested heavily in distillery capacity on the promise of the ethanol blending programme now face weaker returns on that capital, and the market has priced in that disappointment swiftly.
The government, for its part, is prioritising food inflation over industrial margins at a politically sensitive moment. With domestic sugar prices at record highs and the festive season at its peak, New Delhi has chosen to keep sugar in the food bowl rather than the fuel tank. The coming crushing season’s output, and the monsoon’s final verdict on cane yields, will decide how long that trade-off lasts.
The Financial Express reported that Shree Renuka Sugars and Magadh Sugar and Energy saw the steepest declines of the session, falling 6.4 per cent and 6.21 per cent respectively, while Bajaj Hindusthan Sugar and Dwarikesh Sugar Industries fell over 5 per cent. Andhra Sugars, Dhampur Sugar Mills and Dalmia Bharat Sugar and Industries also saw considerable price corrections during the day, as the zero-diversion norm repriced the entire sector in a single session.