Globally Central Banks are invoking negative interest rates or contemplating their use with the basic intent to inflate asset prices in general and inflation in particular. In India, the inflation is still high in food products both nominally and adjusted for price deflator. Now we hear Sugar prices are rising in India, anticipating a shortfall in FY17 Crop Season. This is so different from 6 months ago, when a SAP of Rs 300 was being bitterly contested by Sugar Mills. Branded Sugar retails at Rs 50 per kg now, and with policies intended to help Cane farmers-States like UP and the Central Government have been giving subsidies to industry both to crush more Cane and Export. While the latter may not be needed in FY17, a higher SAP for Sugar just before the Feb17 UP Assembly polls is likely. Combined with a small carry over, export of subsidised Sugar have created conditions for a Shortfall in the domestic market between Demand and Supply. There is little Cane in Maharashtra and TN this year, this deficit may not fully go away even with good rains in the June September Monsoon season. So inflation is good for the Sugar industry and investors should carefully time a entry for a cyclical upswing in fortunes.
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