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Stocks of cement companies are seen in the red next week as the onset of monsoon is likely to lead to a significant decline in demand as well as price of cement in the near term. Despite reports that HeidelbergCement India and some firms in Andhra Pradesh have hiked prices, the mood has failed to improve and the move is temporary and soon there would be a correction in cement prices.
The cement despatches and production will see a decline in June, continuing with the trend in May. Demand for cement is generally low during the monsoon season, but it was not upbeat in the past five months either.
We were expecting some activity in the infrastructure space around this time with eye on general election next year, but even that has not happened. Housing sector too is not looking up as of now. So, in the near term margins of cement companies will remain under pressure and stocks will bear the brunt. Also, Reserve Bank of India Governor D. Subbarao's recent hawkish comments on inflation and current account deficit has quashed hopes of a rate cut.
Lower interest rates would have translated into pick-up in demand for housing, which in turn would be positive for the cement sector. During the week, market will keep a close eye on Ultratech Cement, which has moved the Supreme Court against Competition Appellate Tribunal's May 17 order that had asked 10 cement companies to deposit 10% of the 63-bln-rupee penalty imposed on them by the Competition Commission of India for alleged cartelisation.
The tribunal had asked the cement companies to deposit the money in one month and had posted the case for hearing in August. Shares of India Cements, which contained its fall to 1.72% this week, will also continue to be in focus. The stock has been bearing the brunt of developments relating to the Indian Premier League betting scandal, as it owns stake in Chennai Super Kings team.
