HSBC cautious on Indian cement sector

HSBC cautious on Indian cement sector
Published: 23 February 2009

Given the deteriorating macro economic outlook and expectations of softening GDP, the long term outlook for the cement sector remains difficult. HSBC in a report said that it is cautious on the sector. "Our key underweight stocks are ACC, Ambuja Cements, Madras Cements and India Cements. However, we are overweight on Shree Cements," the HSBC report said.

High dispatch growth in January was due to a low y-o-y comparison (5% growth in January 2008). The figure was low last year as a severe winter slowed down construction activity. This year growth was driven by north India, which recorded 20% YoY growth. South India saw 3% YoY growth, the lowest figure in January in four years, and west India posted a 3% decline – the first decline in January in four years.

HSBC expects dispatch growth to remain strong in the short term as construction traditionally picks up during February-May. Demand also got a boost from government spending on low-cost housing and infrastructure projects, including irrigation. However, it said that the long term scenario is not encouraging.