Expect consistent demand for cement in seasonally weak period: Geojit Financial Service

Cement Industry Demand To Remain Strong In Seasonally Weak Period

Cement stocks ended higher in trade, rallying 2-5% in today’s trading session.

While the prevailing belief is that construction activities and infrastructure creation come to a standstill during the monsoon, Guarang Shah of Geojit Financial Service has a different perspective. In an exclusive conversation with Moneycontrol, he cited data from the last two years and pointed out that the industry has been on a consistent upward trajectory during the monsoon season, riding on growing demand.

Geojit’s confidence in defying conventional wisdom stems from the innovative products introduced by cement manufacturing companies. These new solutions, such as  Portland Pozzolana Cement, Water Repellent cement have mitigated the impact of the monsoon season on construction, allowing projects to proceed at a steady pace.

The financial services company is optimistic that the sector will overcome the challenges it faced in the past. One of the factors that had previously pressured the sector is the increase in input costs, leading to a decline in operating margins. However, Shah noted that input costs have started to decrease, and operational efficiencies have resulted in healthier profit margins.

Overall, Shah remains highly positive about the sector's performance, especially considering the upcoming state and national elections, which will likely lead to project approvals being expedited, and government support.

He sees eight opportunities within space, five from the large-cap category and three from the mid-cap category.   Among large-cap stocks, Shah favored , ACC, Ambuja, Shree Cement and Grasim. In the mid-cap segment, the top picks were Dalmia Bharat, Ramco Cement and JK Lakshmi Cement.

Shah’s comments were made in light of  Investec Report’s cement dealer check suggested a pan-India price decline of Rs 4 per bag MoM in May.

View on banking and RBI monetary policy:

Geojit Financial Services has been positive on the banking and NBFC sectors for a while, seeing them as outperforming and undervalued.

Shah expects the RBI to maintain the status quo in its upcoming credit policy meeting due to uncertainties around the monsoon and potential inflationary pressures. He  believes that private sector banks have outperformed, but it's time to look at government banks as well.

Geojit Financial Services favors State Bank of India, Canara Bank and Bank of Baroda in the PSU banks category, and HDFC, Axis, ICICI, Kotak, IndusInd Bank, Federal Bank, IDFC First Bank and Citi Union Bank in the private banks category.