Index : 1,960 | 1Yr : +9.44% | 1Mo : -6.97%
Category : Sectoral Trackers
Min Investment : 19,184
India is the second largest producer of cement in the world. With the government's strong focus on infrastructure and construction, the cement sector is expected to be an obvious beneficiary. The housing sector is the biggest demand driver for the cement industry accounting for 2/3rds of total consumption. Hence, the industry is largely dependant on the growth in housing construction which is in turn dependant on several factors like per capita growth in incomes of young individuals. Infrastructure, commercial and industrial construction account for the rest of the demand and as of now, do not impact the cement companies as much.
The industry is highly consolidated with top 20 companies controlling around 70 percent of total production. It has high entry barriers as it involves large capital investments and long gestation periods. Also, obtaining access to sufficient limestone reserves is an additional impediment for new entrants in the market. Considering that the end product is homogeneous, success is dependant on distribution reach and retail presence across the country.
The implementation of the Government's ambitious infrastructure projects and providing housing for all as promised, will auger demand and solidify the future of this sector. A cyclical upswing in overall demand in the economy will also indirectly give it a boost. Invest in well managed cement companies that have done well in the past and will most likely continue to outperform in the future.