Sugar stocks at consolidation breakout: Fresh buying or relief rally?

Indian sugar stocks were buzzing from the start of the week after the Union Government doubled import tax on sugar. The import duty on sugar was hiked to 100 per cent on February 6.

Following this announcement, the stocks had bounced back from their multi-month lows, however, they witnessed some more upside on February 9, with volume spurts. This is because the stocks have duly broken their 5-10 days consolidation.

EID Parry, the biggest listed company by market capitalization had hit a Hammer-like pattern on February 6, and has been taking gradual steps upside, but with tremendous volatility. Even the second in rank, Balrampur Chini is out of its consolidation supported by volumes.

Likewise, most of the frontline sugar stocks with a market cap of more than Rs. 1,000 crore are off their lows but lagged momentum. The oscillators, specifically 14-period RSI are lying between 40-50 and are refraining the stocks from gaining momentum. However, small-cap and tiny-cap sugar stocks like Sakthi and Avadh Sugar stocks have bounced back from their oversold zone with positive crossovers. While stocks like Magadh Sugar have given volume breakout with RSI quoting above 60 which depicts momentum.

Traders should remain cautious while buying as some of the sugar stocks might show resistance at the retracements and turnaround yet again to close lower. One can enter on confirmation of fresh buying.