Cement stocks crumble

Cement stocks led the sell-off on the bourses on Tuesday following the government's decision to abolish customs duty on ordinary portland cement. India Cements plunged nearly 9% to Rs 221. ACC dropped over 7% to Rs 1,037.

The Economic Times (India) via NewsEdge Corporation :

: Cement stocks led the sell-off on the bourses on Tuesday following the government's decision to abolish customs duty on ordinary portland cement. India Cements plunged nearly 9% (Rs 21) to Rs 221. ACC dropped over 7% (Rs 79) to Rs 1,037. Gujarat Ambuja slumped 6.7% (Rs 10) to Rs 137.

Ultratech dropped over 4% (Rs 52) to Rs 1,059, and Grasim shed 3% (Rs 89) to Rs 2,805.However, analysts tracking the sector feel the panic may have been overdone. Portland cement accounts for only 32% of production in India. It is blended cement that accounts for majority of the production, and the customs duty on blended cement has not been changed.

Analysts feel that in a scenario where India imports almost negligible cement from overseas, the impact of this rate hike will be minimal. "This move by the government is a signal to cement companies that they cannot go for uncontrolled rate hikes," says Nilesh Shetty, senior analyst at Pranav Securities. "We believe that this move is neutral for cement companies. However, they may not be able to go in for any price hikes as expected before," he adds.

The cement industry reported 8% y-o-y growth in despatches to 135.3 lakh tonne in December 2006, compared with a 13% growth in November 2006. The slowdown in December 2006 , however, was largely due to a higher base in December 2005.

Meanwhile, lower-than-expected Q3 numbers from banking behemoth SBI and the weak trend in world markets further undermined sentiment, dragging down the 30-share Sensex by 168 points.

The Sensex started off on a steady note, but could not hold ground. It fell to an intra-day low of 14025.74 before ending at 14041.24, a fall of 1.2% from the previous close of 14209.74. The S&P CNX Nifty ended around 0.9% lower.

"At these levels of valuations, one has to be extremely cautious," says Ketan Dholakia, dealer at Centrum brokerage. "Watching from the sidelines may be beneficial for the next few days ahead of the budget.

Besides, we expect further choppiness on account of impending expiries," he says.