Sugar stocks witnessed a big rally for the second consecutive day, with some names like Shree Renuka Sugars and Dalmia Bharat gaining 15-20 per cent on Wednesday. Big sugar companies -- EID Parry (2.5 per cent), Balrampur Chini (4 per cent) and Bajaj Hindusthan (9 per cent) -- also saw huge buying interest.

Here are the reasons for the sharp rally in sugar stocks:

1) Sugar production in India is likely to drop 5 per cent this year because of insufficient monsoon rain, says Indian Sugar Mills Association. The fall in sugar output will support domestic prices, which have been under pressure because of surplus sugar production over the last five years, analysts say.

2) A rally in global sugar prices will help domestic sugar mills looking to export 40 lakh tonnes of sugar this year, traders say. To boost exports and cut down domestic stockpiles, the government had earlier announced a subsidy of Rs 4,000 a tonne for exports of raw sugar in 2014-15 year ended on September 30. India is the world's second biggest producer of sugar.

3) The government is working on a solution to ensure that cash-starved mills make timely payments of over Rs 12,200 crore dues to farmers, Home Minister Rajnath Singh said on Tuesday. This will help the balance sheets of sugar companies that owe large sums to cane growers.

Source:- profit.ndtv.com