Sugar stocks came under heavy selling pressure in early trade on August 21 after the government approved duty free imports of 1 million metric tonnes of raw sugar, marking a significant policy intervention to increase domestic supplies and moderate elevated sugar prices ahead of the festival season.

Dalmia Bharat Sugar was the worst performer among major sugar stocks, falling 5.47 percent to Rs 480.30. Dwarikesh Sugar Industries declined 4.32 percent to Rs 52.99, while Balrampur Chini Mills dropped 4.15 percent to Rs 735.25. Triveni Engineering & Industries fell 3.82 percent to Rs 288.60.

Other stocks also declined, with Uttam Sugar Mills down 3.07 percent, EID Parry lower 2.22 percent, Dhampur Sugar Mills falling 1.99 percent and Avadh Sugar & Energy declining 1.53 percent. Bajaj Hindusthan Sugar lost 1.41 percent, while Shree Renuka Sugars fell 1.03 percent. Simbhaoli Sugars was unchanged.

The weakness in sugar stocks came despite the broader market remaining largely stable with a positive bias. At 9:17 am, the Sensex was up 25 points, or 0.03 percent, at 77,563, while the Nifty gained 12 points, or 0.05 percent, to 24,244. Market breadth remained positive, with 1,498 shares advancing compared with 941 declining.

The government has allowed duty free imports of 1 million metric tonnes of raw sugar until October 31 as it seeks to increase domestic availability and contain record high prices. India normally levies a 100 percent import duty on sugar. The decision marks the country's first significant sugar imports in nearly a decade.

The move follows a sharp rise in domestic sugar prices amid tightening supplies. Sugar prices have increased by nearly 40 percent over the past two months, according to Reuters, raising concerns over the impact of higher prices on consumers and downstream users.

The timing of the import window is particularly significant because sugar demand typically increases during the festival season, when consumption of sweets and confectionery rises and large institutional buyers build inventories. The October 31 deadline is intended to ensure additional supplies reach the domestic market during this period of stronger demand.

Port based sugar refineries that normally import raw sugar duty free for refining and subsequent exports will be eligible to apply for allocations under the 1 million tonne quota. The government has also permitted refined sugar produced from raw sugar already imported by these refiners to be sold in the domestic market until the end of October.

The import decision could increase domestic sugar availability and moderate prices, potentially limiting the benefit that sugar producers were receiving from elevated realisations. This is a negative near term development for sugar companies that had benefited from tight supplies and rising domestic prices.

The government has also taken additional measures to contain sugar prices. Earlier this week, it tightened stockholding restrictions for large consumers, requiring dealers consuming more than 10 metric tonnes of sugar per month to maintain inventories equivalent to no more than 15 days of consumption. The restriction will remain in effect from September 1 through November 30.

Interestingly, global sugar prices moved higher following India's import announcement. London white sugar futures and New York raw sugar futures rose as much as 4 percent, as India's return to the international market increased expectations of additional global demand.

Sugar stocks had rallied strongly during the previous two trading sessions as tight domestic supplies and record prices improved expectations for producer realisations. The rally accelerated on August 20, with Balrampur Chini Mills rising 18 percent, Dwarikesh Sugar Industries gaining nearly 14 percent and several other sugar stocks advancing between 7 percent and 10 percent.

The government's latest intervention has therefore changed the near term outlook for the sector, with investors now weighing the benefit of elevated global sugar prices against the potential pressure on domestic realisations from higher imports.