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Cement companies' stocks are likely to track the broad market next week but the trend is seen subdued because of a weak demand outlook for the construction material as monsoon sets in. Reports that cement companies in Andhra Pradesh may hike prices should bring in some confidence among market participants regarding renewed demand, but even that will not be sustained. Also, Jan-Mar earnings of most cement companies have been dull. Major cement players reported a sequential decline in realizations during the March quarter, contrary to the trend in earlier years. Continued demand moderation observed in the sector is likely to test pricing discipline over an extended period. The general mood in the market is down over waned hopes of a rate cut after Reserve Bank of India Governor D. Subbarao's hawkish comments on inflation and current account deficit Thursday.
Quashing of hopes of a rate cut further raises doubt about pick up in housing demand as well pick up in infrastructure activities. We had hoped that demand for cement would pick up as lower interest rate and approaching general elections could trigger some infrastructure and housing activity. There will be a need for a real trigger for stocks of cement companies to reverse the general subdued trend, and that was quite unlikely. Stocks of India Cements, which fell about 7% this week and about 18% last week, will continue to be in focus. The stock has been bearing the brunt of developments relating the Indian Premier League betting scandal. The company's Vice Chairman and Managing Director N. Srinivasan's son-in-law, Gurunath Meiyappan, was put behind bars on allegations for betting. Meiyappan is team principal of Chennai Super Kings, the IPL franchise owned by India Cements.
