Price Correction a Good Opportunity to Cherry-Pick Promising Scrips from Cement Sector

The demonetization of high value currency notes has caused consumption stocks to witness a sizable correction over the 40-odd days since November 8, thereby dragging down the overall markets. However, the cement sector particularly seems to have taken a severe beating. When considering the performance of a proxy index of the top 15 major cement companies weighted by market capitalisation as compared to the Sensex over the period, we can see that the proxy index significantly underperformed the market. The Sensex delivered a return of -3.9 per cent during the period as against the proxy index which had a return of -15 per cent. While the cement companies’ exposure to the realty sector (which is expected to be particularly impacted by demonetisation) and high sales ticket sizes make them particularly vulnerable, the observed drastic correction in prices may be unwarranted, considering that demonetization is a passing and one-off event. Consequently, savvy investors may consider these depressed levels as an opportunity to pick up exposure to strong companies in this buoyant sector.


The cement industry is a key component in India’s economic growth and stands to gain from the massive infrastructure push by the government. The government’s focus on infrastructure development along with an improving fiscal position is expected to allow infrastructure spending to offset the slowdown in housing to a certain extent. Further, while the demand from realty sector is expected to take a 15-20 per cent hit in the near term, it will likely rebound further out as the economic activity normalises and a gradual reduction in mortgage rates results in nascent demand making an impact.

The current price levels can thus be seen as a great opportunity to cherry-pick strong performers within the sector that are likely to outperform over the next 18-24 months. If performance for the recently concluded quarter is considered, you could see that on an aggregate while revenue growth for the quarter has remained subdued, net profit has grown by an impressive 39.6 per cent YoY. Particularly impressive is the performance from Heidelberg Cement whose net profit for Q2FY17 shot up 650 per cent YoY and JK Lakshmi Cement which managed to turnaround its bottomline to green from a net loss in Q2FY16.