The cement sector, which saw an unprecedented drop in demand and prices in recent months due to weak economic conditions and the monsoon, is expected to see its fortunes turn around soon. With an above normal rainfall this year, harvests are likely to be good and rural housing demand may see a pick-up. Also, the coming up of festival season and the pre-election spending on infrastructure by the government will help the cement prices and demand to go up.

The government mostly pumps funds for infrastructure & housing projects in its bid to increase its probability of winning another term. While projects would be announced 12]15 months ahead of the elections, the cement is actually consumed during the project execution phase with a lag of 5]6 months.

For FY2014 as a whole cement demand growth is expected to remain muted at ~6%. Thus, we believe that near-term weakness in cement stocks can be used as opportunity by long term investors to increase their holdings.