Economic Times reported that shares of cement makers ended firm on Tuesday after a sluggish start on hopes April's dismal industrial output will prompt the Reserve Bank of India to cut rates that will boost construction activities.
Market speculation that India's anti monopoly watchdog could pass an order steeply reducing penalties on cement companies for alleged cartelisation also contributed to the upbeat mood. Holcim controlled ACC and Ambuja Cements rose by over 3% and 5%, respectively, while Aditya Birla Group company Ultra-Tech gained almost 2%.
Mr Navneet Munot CIO, SBI Mutual Fund said that "Infrastructure stocks got a leg up on Tuesday after dismal IIP numbers reinforced hopes of a rate cut and more proactive measures by the government.”
The central bank is widely expected to cut a key rate, at which it lends to banks, by 25 basis points at its policy meet next Monday as faltering economic growth coupled with policy paralysis threaten to reduce the country's investment rating to junk status, as pointed out by rating agency S&P in a report on Monday.
Traders also bet on the possibility of a reduction in estimates of penalty for alleged cartelisation during 2008-10, an event that has weighed on cement shares in recent months.
Mr Rikesh Parikh, V P (equities) Motilal Oswal Securities said that "Rumours were rife that CCI may reduce the extent of penalty on cement makers to 3% of turnover from an estimated 5-10 %. This added momentum to cement counters after relatively lackluster performance recently."
Fund managers are upbeat on the prospects of the larger cement makers such as UltraTech, ACC and Ambuja, especially after the government said recently it would kick-start infra projects to revive a sagging economy and on expectations of lower energy costs.
Mirae Asset Global Investments CIO Gopal Agrawal said that "Cement companies' results in the fourth quarter matched expectations .... a decline in international coal and fuel prices augur well for the sector."
Investors prefer large cement companies over their smaller peers despite cheaper valuations fearing difficulty in exiting if markets fell sharply. A fund manager who requested anonymity said that "Infra spends on things like road projects will be positive for large cement companies, which at 15 times forward earnings are costlier than mid-caps but are still good picks for the long term, especially as capacity addition will remain muted for two years after the end of the current financial year.”
"Small and mid-cap stocks, on the other hand, are trading at singledigit valuations but could be risky bets if the global situation worsens. If our market tumbles taking cues from others, investors could find an exit out of such stocks difficult as they are not too liquid."
Source - Economic Times
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