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In sectors where government policies have a big impact, there is always a risk that policy changes will affect the companies. Hence, valuations of stocks in such sectors will not cross a certain threshold. Perhaps, the sugar sector tops the list of such sectors because both the central and state governments have a say in policy decisions. Though the general elections are over, there are many states involved in the sugar sector and state elections will be held over the next few quarters. Hence, an adverse story may be built for sugar stocks. What is needed is to distinguish between the reality that the balance sheets of these companies are much stronger than before and the reality that their business model is not just about sugar but also part of clean energy, which is expected to grow.
Looking at the history of the sugar industry, two things stand out. First, the sugar industry’s balance sheets were full of debt. The reason they were full of debt was because the sugar industry was the industry with the most policy and political interference. Second, the sugar industry was nervous as elections approached. The reason was simple: they were making announcements that put pressure on the sugar industry to please their voters.
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