What Are The Reasons for Rising Cement Stocks
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Cement stocks were falling a few months ago, and experts were debating to find out the cause behind it. Many blamed rising fuel costs, Ultratech cement's massive capital expenditure plan, weak demand for cement, and other factors.
The scenario, however, has completely changed in the present. Cement stocks are among the top gainers, surprising everyone, and the discussion to know the cause of the sudden rise in cement stock has begun once more.
There is a lot of speculation in the market about this, and it may be difficult for you to understand the exact reason for the sudden increase.
As a result, in order to make things easier for you and provide you with accurate information, we have compiled all of the necessary knowledge about the rise of cement stocks as well as whether investments in these stocks are worthy or not in this article.
Continue reading to learn everything about the cement stock rise and future investment in these stocks.
Following extensive research, we have identified the top five reasons that could explain the sudden increase in cement stock. Read on to understand the cement stock rally and to get additional investment advice on cement stocks.
2.1.1 Rise in economy
You have probably read or heard in the news that India has surpassed the United Kingdom to become the world's fifth-largest economy. This news made every Indian proud to be a part of the country.
This news is also significant because our country has surpassed those who ruled over us for decades. Apart from being a source of pride, this news also demonstrated that the Indian economy is expanding at a rapid pace.
When a country's economy expands, so does the standard of living for its citizens. People earn more and begin to invest more in infrastructure and other things. The extra investment brings a rise in the infrastructure sector which increases cement demand itself.
As a result, the rising economy could be the cause of the rising cement stock.
2.1.2 Ban on mining
Nowadays, the government takes the environment and environmental issues very seriously. ESG has expressed concern about the mining of raw materials for cement manufacturing and its negative impact on the environment.
Taking this concern seriously, the government has taken firm action to halt mining in certain areas of the country. The official has imposed strict regulations on the mining of raw materials for cement in specific mines.
Following the ban on mining essential raw materials, cement manufacturers may face some difficulties in producing cement. As a result, it may be difficult to produce enough cement to meet the demand.
Because of the scarcity of essential raw materials for construction, cement prices may rise. This is also one of the reasons for the rise in cement stock.
2.1.3 Reducing Input Cost
There are numerous ingredients needed to make cement. Pet coke and coal are the two most important ingredients in the manufacture of cement.
In recent months, the cost of these essential ingredients had skyrocketed. As a result, the input cost was also high. However, the companies were unable to raise their prices in order to remain competitive in the market.
This imposes a cost on businesses and significantly impacts their margins. Nonetheless, the global price of pet coke and coal has dropped significantly since August. As a result, cement manufacturing input prices have decreased.
The lower input costs will relieve companies of the additional burden. This could be a positive sign for cement stocks to rally in the stock market.
2.1.4 Upgrading infrastructure
According to experts, another reason for the rally of cement stock is increased government and public investment in infrastructure. To strengthen the Indian economy, the government is focusing heavily on developing the country's infrastructure.
The government has also announced a number of infrastructure projects in this year's budget. Growing infrastructure necessitates more construction work and higher cement demand. Because Cement is an important raw material in construction.
The growing demand for cement in the present and future could give investors new hope and rekindle their interest in cement stocks.
2.1.5 The Arrival of The New Season
Now you must consider how the season may affect the cement stock and what the relationship between season and cement is.
Cement is primarily used in construction, and India has been experiencing monsoon season for several months. During the monsoon season, all construction work is halted. As a result, the demand for cement has decreased due to the impact of the season.
However, the monsoon season is ending, and the festive and wedding seasons are also approaching in the country. This could lead to an increase in construction and the demand for cement.
As a result, the arrival of the new season could also be the reason for the rise in cement stock.
We discussed the possible causes of the recent rise in cement stocks. However, it is also critical to understand how many percentage increases have occurred in the stock of these cement companies, as well as the return on investment in cement stocks.
Shree cement's stock has risen by 8%, followed by the other major cement manufacturing companies. Ambuja cement shares are up by 21% from their July market price. ACC shares are up by 10%, Birla Crop is up by 6%, Heildberg is up by 12%, JK cement is up by 16%, Indian cement is up by 27%, and the big gun Ultratech is up by 4%.
The percentage of the increase in shares is determined by comparing the prices of these stocks from July to September. We can see that cement stocks have provided good returns to investors in recent months.
But, are these stocks also good for long-term investments?
Let's take a look ahead.
3.2 Investing in Cement Stocks
The short-term surge in cement stocks is positive, but whether investing in cement stocks is worthwhile in the long run is debatable.
For the time being, we can see strong demand for cement as infrastructure projects expand. This is encouraging news for the industry. However, because of the mining ban, cement prices may rise in the coming time.
The rising price of cement may have a negative impact on demand, which is negative news for the industry. On the other hand, a drop in the global price of pet coke and coal may keep cement prices reasonable.
Furthermore, cement is required for construction, so there could not be a significant drop in demand until people are unable to find a good substitute for it. As a result, we can conclude that investing in cement stock is a reasonable option for earning reasonable returns in both short and long-term investments.
Cement stocks are rising, and it does not appear that they will fall in the near future. As a result, it could be a good investment option for you to make an investment. However, keep in mind that investing is more about researching companies before buying and selling their stock and less about speculation. So, before making any decisions, conduct your own research.
Frequently Asked Questions
This may depend on a number of variables, including the nation's economy, infrastructure development plans, cement prices, etc. Despite the fact that cement stocks currently have all the odds in their favour, you should still conduct research before buying any stocks.
There isn't a single foolproof method to identify a winning investment. Before investing money in any stock, there are a number of things you should consider. To examine the best cement stock, you can consider the company's growth, financial report, debts, upcoming projects, PE ratio, and the market's demand for the product.
The cement industry's future is promising. The numerous infrastructural initiatives are likely to enhance demand for the product. The cement industry is anticipated to reach 660 MMT by 2030.