Indian sugar stocks fell 2% to 6% in early trade on Monday after the government directed oil marketing companies to reduce sugar diversion for ethanol production to zero for the 2026/27 supply year, Reuters reported.

The latest ethanol tender excludes supplies produced from sugarcane juice, sugar syrup and B-heavy molasses, cutting off an important higher-margin outlet for sugar mills.

Shares of Balrampur Chini Mills, EID Parry, Triveni, Bajaj Hindusthan Sugar, Shree Renuka and Dhampur Sugar fell between 2% and 6%.

The move is aimed at increasing domestic sugar availability and easing record-high prices in India, the world's biggest sugar consumer. Sugar prices have risen more than 10% amid festive-season demand, said Siddhartha Khemka of Motilal Oswal Financial Services.

Analysts at Motilal Oswal and Choice Broking said the decision reflects the government's priority of protecting food supplies after weak rainfall in key producing states raised concerns about output.

For mills, the decision limits the flexibility to shift cane between sugar and ethanol and could pressure margins and returns on ethanol-capacity investments.

Sources: Reuters via The Hindu BusinessLine, ChiniMandi, Outlook Money.