Cement Stocks to languish on subdued demand - Integrated

Stocks of major cement companies may continue to languish next week because of subdued demand for cement and absence of any immediate sector-specific triggers. As monsoon is in full swing it is but unlikely for cement stocks to gain. Also, since the market is on a downward march, cement companies will follow the trend. Cement companies have already been bearing the brunt of stalled infrastructure and housing activities. The Reserve Bank of India's hawkish monetary policy stance has also taken the sheen off the infrastructure and real estate sectors, further dimming the short-term outlook for the sector.

The RBI kept policy rates unchanged in its review Monday. However, experts are hopeful that pre-election spending on infrastructure will help cement demand to revive, at least in the second half of 2013-14 (Apr-Mar). On an average, monthly cement demand growth is 8% higher than the industry growth 3-9 months prior to an election month. Despite lower industry utilization, some of the factors, like moderating fuel costs, could have positive fallout for quality cement stocks as operational efficiencies would increase. Also, the industry has pruned plant-level inventories for cement and clinker by more than 20% in last 2-3 years, which augurs well for the sector in terms of less likelihood of sharp price correction during unexpected contraction in demand.

Source : Equity Bulls

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