While ACC is very close to its eighteen-month level, L&T too also approaching a fourteen-month low. Gujarat Ambuja Cement is close to its twelve-month low. Grasim is available at its twelve-month low. While the fall has been substantial in the last one month on these counters, signs of revival are yet to be seen. The outlook for the sector is negative as despatches are expected to be lower. During the first five months (April-August 2000) total despatches have shown a growth of 4 per cent. The despatches stood at 38.99 million tonne. The same figure stood at 38.51 million in the corresponding period in the previous year.

While the demand is the main concern, a hike in oil prices which will be announced soon will have a further impact on the bottomline. Lower realisations due to bad conditions in areas like Gujarat due to drought situation, have already affected the performance of players.

An increase which is expected to be in the range of 15 to 20 per cent will surely increase the power bill of cement players. And with demand not showing significant improvement, the players will have a difficulty in passing on the cost increase. While this is an immediate concern, in the medium term, an expected rise in cement capacity will also play an important role in determining the cement prices. The overall cement capacity in the country is likely to increase by ten per cent in the next fifteen months. Of this, a large part of this expansion (around seven million) is coming in Southern region. Other parts of the country will also see an expansion of around 5 million tonne capacity in the next 10-15 months. With this expansion in capacity, the industry requires a robust growth in demand. To fight the situation, either the expansion needs to be delayed or a drastic improvement on cost front is required. Overall, the medium term outlook is far from impressive.

While fundamentals favour a gloomy picture, technical indicators also point towards a negative outlook. ACC is approaching an eighteen month low. The stock is below all medium-term support, and the next support is only at around Rs 68. L&T has a minor support Rs 162, and the next base for the stock is at around Rs 142. For Grasim, the next major support at around Rs 150. Gujarat Ambuja Cement has a minor base at Rs 148, and the good base is only at around Rs 100. Overall, unless these stocks cross their short-term resistance and make a higher bottom, one should avoid long position on these counters.

Deepak Singh Tanwar