Sugar sector stocks will do well in medium to short term: Dipan Mehta, Member, BSE and NSE

In a chat with ET Now, Dipan Mehta, Member, BSE and NSE, speaks about trading in stocks in the sugar space.

ET Now: For years we have forgotten sugar completely. Now, if indeed the new government is serious about reforms, this could completely change the fortunes of the sugar industry. How do you view this development?

Dipan Mehta: Yes, I completely agree with you. It is a cyclical business. It has had several down years. Going by the laws of economics, this sector should do well going forward. It is a sector in which there is lot of government interference. Of course reforms will make a big difference. So if there are some changes taking place over there at the state level and the central government level, then certainly it will be very positive for the sugar companies.

At the same time, this news of ethanol blending also will go a long way in improving the industy's prospects. It will reduce the volatility in their earnings, because the big problem with sugar companies is that the earnings are extremely volatile. That makes valuation quite a bit of a challenge. A lot of investors entirely shun the sector because they cannot handle the volatility in earnings.

On the whole, it will be positive for sugar as also for several other sectors which have been underperforming or which have been challenged in recent times. Perhaps investors could look at having a small exposure to these sectors including sugar. But one needs to keep in mind that in the long term, sugar companies have not been great value creators. But in medium to short term, these stocks will certainly do well given the kind of negative trend which they have been facing over the past two-three years or so.