Cement pivotals recovered in afternoon trades on Wednesday renewed buying interest in stocks from market players.
Larsen & Toubro (up 6.82% to Rs 205.10) was the biggest gainer among Sensex stocks. Gujarat Ambuja (up 2.92% to Rs 162.40), ACC (up 2.05% to Rs 154.50) and Grasim Industries (up 0.26% to Rs 346) all rose. The rise was accompanied by huge volumes, with L&T registering over 31 lakh shares on BSE so far.
Meanwhile, the BSE Sensex recovered from negative territory to 3,286.09, up 4.17 points, at 13:50 IST.
Dealers say buying interest emerged in afternoon trades purely over the unchanged freight rates in the Railway Budget. In the morning, these stocks were trading weak on talk that freight rates may be hiked by 10-15% in the Railway Budget.
Cement scrips have also hardened further on expectations of sops for the sector in the forthcoming Union Budget, which is scheduled on 28 February 2003. Cement manufacturers have demanded that duty on imported coal be lowered. This is expected to bring down input cost. The other demands put forth by the industry include the continuation of the specific rate of excise duty on cement, reduction in the royalty on limestone, reduction in the customs duty on imported non-coking coal and a greater thrust on the housing sector.
Cement demand has been robust, but prices have been under pressure. In the current financial year ending 31 March 2003, the cement demand is expected to increase by a healthy 9.5%. Demand growth is expected to be the highest in the South (about 15%), followed by North (9%), West (6%) and East (4%). The demand continues to be driven by the Golden Quadrilateral road project and sustained growth in housing construction activity.
However, analysts are wary of the capacity overhang. They feel cement production must be curbed to prop up prices and secure greater profitability for the manufacturers. The current month would have seen Sanghi Industries' cement plant commencing commercial production, but for the fact that its management has postponed it till March 2003. After that, the supply overhang situation will worsen, putting pressure on cement prices.
For the period April-January 2003, cement shipments rose by 9.3% to 91 million tonnes from 83.2 million tonnes. Production increased to 91.2 million tonnes (83.2m tonnes). The strong performance is due to the incremental demand from the road sector and a demand pick-up in south India, especially from states like Tamil Nadu and Karnataka
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