Indian Markets have been under the dream run in the last couple of weeks with all-around gains witnessed both in the large cap and the small cap stocks have shown good momentum from the lower levels. The equity markets were under the grip of the bears from the start of the current financial year amid fears of global recession due to the Russia-Ukraine crisis, soaring inflation all over the countries, and geopolitical tensions.
Among the various sectors, investors have been betting huge on a couple of sectors like Banking and Auto for the past few weeks where the fundamentals have started to show positive signs. Nifty Auto Index has made fresh all-time highs and is trading near the same while the banking index is also approaching its highs.
The cement sector is also buzzing in the street after the recent underperformance of the stock prices of cement stocks. The Adani group’s offer to buy 26% of Ambuja Cements Ltd. for Rs 385 per share and the same stake for Rs 2,300 per share of ACC Ltd has also created investor interest in the cement sector.
In the past week, the Adani group has received regulatory approval from SEBI for Rs. 301 billion ($3.8 billion) open offer to buy the remaining shares of two Indian cement makers which have further added to the buzz in the sector. In the past week, the stock of the cement major appreciated by 10% after the Competition Commission of India (CCI) approved Adani Group’s acquisition of Ambuja Cements and ACC from Switzerland’s Holcim.
Cement companies have been facing challenges in the current environment of rising costs. Over the medium-term cement companies are facing huge cost-related headwinds as most of the cement companies have reported increases in raw material, power, and fuel costs backed by soaring energy and logistic costs. Cooling of the commodity prices can provide some relief to the prices and upscale the demand for the products.
If one looks at the stock prices of the cement companies in the current calendar year, barring the share prices of the ACC and AMBUJACEM which are led by the open offer news followed by a couple of midcap cement stocks no other major company has shown an increase in the stock prices.
In reference to the normal market terms, the cement sector sees a good revival in demand scenario post-monsoon season led by a pick up in the demand from the construction activity followed by festive season led demand which will also boost the cement sales. The sector may remain in the limelight in the coming weeks due to ongoing open offers from the Adani group for the two major cement giants and any major correction in this sector may be the best level to enter for a long-term perspective.
Among the mid-cap stocks, SHREECEM, RAMCOCEM, and INDIA CEM are showing good traction in the stock prices while in the large-cap space ULTRACEMCO will remain our favorite counter from the investment perspective. Investors and traders should have a close eye on the sector developments and should definitely have some portion of their portfolio in the cement sector to lead the infrastructure and the growth rally of the economy as cement acts as one of the proxy players for the growth.
On the other hand, as far as the overall markets are concerned, we expect markets to consolidate from the current levels after the recent up move and stock-specific action are likely to continue in the next couple of months. Investors should have a close watch on the companies where the results are good, margins remain intact and volumes are stable or growing. Companies that are exhibiting reductions in margins above the expected levels followed by negative commentary should be avoided from the investment perspective.