Sugar Stock Could Correct

Praveen Bajaj — Wed, 21 Oct 2009 09:21:49 +0000

Brazil this week imposed a 2 percent tax on foreigners’ purchases of stocks and stocks to curb the appreciation of its currency. This is because the Brazilian currency has appreciated by around 33% the dollar this year, the best performer among the 16 most-actively traded currencies tracked byBloomberg.

This was in fact hurting the Brazilian economy, since a major portion of its income depends on export of Sugar and other related products. Thus in a move to protect its exporters the government took this decision. This also lead to a 3.4% fall in the BrazilianBovespa Index tumbling by around 3%, the most since March.
I believe that this move could also lead to a correction in the Global sugar prices, because it will lead to a slowdown of fund flow in Brazil. Thus, at the current levels it makes sense to go short on the Indian Sugar stocks, which have already risen by a handsome amount (YTD), because if sugar prices will correct, its inevitable for the stocks to follow the same trend.

Moreover, most of the leading brokerage houses in India has come up with fresh buy calls on the Indian sugar stocks, despite their already escalated levels and which I believe could be the sugar sector entering into the distribution phase of this bubble.

Hence, one can go short on the sector with a trading view, but definitely with a stop loss.

Author: Rahul Sonthalia, Analyst, Kredent Group

Money Bol » correction

Sugar Stock Could Correct