Sugar prices are rising on tight supply and strong demand: Which sugar stocks could benefit most?

Sugar has suddenly become much more expensive for consumers. For sugar mills, however, the price spike could mark the beginning of a sweeter phase. Mills earn more when sugar prices rise, which usually means higher profits. For investors, the question isn’t what consumers are paying at the till. It’s whether this supply crunch is here to stay, and whether it will show up as sustained profit growth for listed sugar companies.

India’s sugar shortage stems from three factors. The biggest is a production shortfall, with domestic output falling below expectations. Strong festive demand has added pressure, while disease and excess rainfall have damaged sugarcane crops in several states. Tight global supplies also limit India’s ability to bridge the gap through imports. As a result, average retail sugar prices across nine cities rose to nearly Rs.70 per kg in the third week of August, against a year-to-date average of around Rs.47, according to ChiniMandi.com.

Can govt cool prices?

Concerned about the rapid rise in sugar prices, the government has announced a series of measures to boost domestic availability. These include allowing duty-free sugar imports and imposing stock limits to discourage hoarding. The interventions have managed to cool prices from their peak levels, but they have not reversed the broader uptrend. Data from the Consumer Affairs Ministry shows that the all-India average retail sugar price stood at Rs.64.2 per kg at the end of August 2026, up 30% from a month earlier and nearly 39% higher compared to the same period last year. The key question now is whether these policy measures can bring lasting relief. Most analysts believe the answer is no.


Research notes from CRISIL and India Ratings suggest that the government’s actions may ease near-term scarcity concerns but are unlikely to change the underlying supply picture. Low opening inventories, weather-related uncertainties and subdued production prospects for the upcoming sugar season continue to point towards a relatively tight market.

India Ratings estimates that the quantity of sugar permitted under the duty-free import window amounts to only about 3-4% of India’s annual consumption. As a result, the impact on the overall demand-supply balance is expected to be limited.

Another challenge comes from the global market. Brazil, the world’s largest sugar producer, is increasingly diverting sugarcane towards ethanol production because ethanol economics have become more attractive than sugar production. This reduces the availability of sugar in global markets and helps keep international prices elevated. According to Tanvi Kanchan, Associate Director at Anand Rathi Share and Stock Brokers, the rise in global prices means India cannot rely on cheap imports as comfortably as it could a year ago.

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Why the supply story may persist

Industry experts believe the supply situation may remain challenging beyond the current season. With 2026 evolving into an El Niño year, it could affect rainfall patterns across key sugarcane-growing regions. Sugar production depends heavily on cane yields and sugar recovery rates, both of which are sensitive to weather conditions and pest attacks.

Concerns are already emerging over crop productivity in parts of Uttar Pradesh and Maharashtra, where some regions have experienced rainfall deficits. As a result, analysts are becoming cautious about production growth over the next two seasons.

A report by Elara Capital expects sugar production growth during SS27 (Sugar Season) and SS28 to remain modest. The brokerage believes sugar prices are likely to stabilise at levels that are still significantly higher than those seen during FY2025-26. Such an environment would support better realisations and stronger profitability across the sector.

DAM Capital has also turned more optimistic on sugar prices. The brokerage recently raised its sugar realisation estimates for its coverage universe for FY2026-27 and FY2027 28. The revision reflects expectations of low opening inventories, muted production growth and firm international prices.

Kanchan believes current sugar prices, which are comfortably above the minimum selling price (MSP), are supporting mill realisations. However, she cautions that this benefit is partly the result of the recent price surge and supply management policies and could moderate if government measures successfully cool the market.

What about costs?

Higher sugar prices are good for revenue, but sugar mills also face rising costs. The highest cost for any sugar mill is sugarcane procurement. The price paid for sugarcane is determined by government-set benchmarks such as the Fair and Remunerative Price (FRP) announced by the Centre and the State Advised Price (SAP) set by some states.

For SS27, the central government has increased the FRP by Rs.10 per quintal. Market participants also expect Uttar Pradesh to raise its SAP ahead of state elections scheduled for February 2027.

Typically, higher cane prices put pressure on mill margins. This time, however, analysts believe the impact will be largely offset by stronger sugar realisations. CRISIL expects integrated sugar companies to report modest margin expansion of around 50 basis points in SS26. The improvement could accelerate further in SS27, with industry margins potentially expanding by 100-200 basis points, supported by better sugar realisations, lower inventory pressure and stronger earnings from distillery and cogeneration operations.

Ethanol equation changes

Higher sugar prices are also changing how mills use their raw material.

When sugar prices are this attractive, mills would rather sell sugar than use their cane to make ethanol. So this year, most of the ethanol supply is expected to come from grain rather than sugarcane.

There is a technical reason for this too. Cane juice can be turned into different grades of molasses. B-heavy molasses still has a good amount of sugar left in it, so it makes sense to use it for sugar when prices are high. C-heavy molasses has very little sugar left, so it was headed for ethanol anyway.

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Rachit Mehta, Vice President and Sector Head at ICRA, says ethanol supplies for Ethanol Supply Year 2027 will mostly come from C-heavy molasses, as mills hold back cane juice and B-heavy molasses to protect sugar supply.

Sugar stocks that analysts prefer

Analysts favour companies with strong fundamentals and advise investors to closely monitor policy changes, import arrivals, monsoon trends and working capital pressures. Dhruv Joglekar, Assistant Fund Manager at Monarch PMS, recommends focusing on companies with low leverage, a balanced distillery mix, and strong balance sheets backed by healthy cash generation.

The following two sugar companies have the most buy recommendations on Bloomberg:

Balrampur Chini Mills may see some pressure on ethanol volumes due to lower diversion, but analysts expect stronger sugar realisations to offset the impact. Its Polylactic Acid project, slated for commissioning in the second half of FY2026-27, is viewed as a key long-term growth driver.

Triveni Engineering & Industries benefits from flexible distillery infrastructure that can switch to grain-based ethanol production. Analysts believe higher sugar prices, improved crop varieties and continued growth in ethanol blending will support earnings growth over the long term.

Stocks mentioned are not recommendations. Consult your financial adviser.