Shares of large Indian cement companies have surged to 52-week highs in recent weeks despite demand remaining sluggish, raising concerns that cement producers may be colluding to keep a control over supply so that prices remain high.
Shares of cement companies such as Ambuja Cement, ACC, UltraTech and Madras Cement have gained 6-8 % in the past couple of weeks compared to the 5% rise of the Nifty. Most of these shares are hovering around their 52-week highs.
"Price collusion has driven up prices and helped sustain margins . But given the demand situation , even this strategy is not working. If they cut prices to revive demand, stock valuations will correct accordingly," said a fund manager with a banksponsored mutual fund, who did want to be identified. Indeed, market experts are somewhat skeptical about the movement of cement stocks in recent weeks.
"The rally is not justified. It is baffling when construction and infrastructure sectors aren’t doing well, cement stocks should rally," said P Phani Sekhar, fund manager-PMS , Angel Broking. India’s top cement makers have been accused of ’abuse of market dominance and cartelisation’ by the Serious Fraud Investigation Office (SFIO). The Competition Commission of India is investigating a report by the SFIO in this regard.
Source: Economic Times of India