Rs 8,700 cr-FPI selloff makes this sector 2022’s worst performer. What should you do?

Cement stocks have been one of the worst performers so far in 2022 after notching strong gains a year ago, as earnings growth turned vulnerable due to skyrocketing raw material prices and energy costs.

The spike in inflation affected consumption, particularly in the rural markets and dented demand for the construction material.

Muted demand and higher costs hit their profitability hard enough that the operating profit per tonne for the sector dropped to a decade-low in the September quarter.

The rise in costs outpaced the growth in realisations for most of the companies in the previous quarter.

The other factor that played spoilsport for the sector was the big foray by Gautam Adani-led Adani Group through the acquisition of Holcim Group’s India business.

This triggered concerns of rising competition in the sector and saw investors dumping stocks.


Foreign institutional investors have net sold shares worth Rs 8,700 crore in the construction materials sector so far in 2022, according to the NSDL data.

SHOULD YOU EXIT?
While earnings have taken a major hit, analysts believe the worst may be over the pack, and companies should start seeing a recovery from the current quarter.

“Most companies seemed confident that demand growth will pick up momentum post festive season is over in October, and expect pricing to improve steadily,” Nirmal Bang Institutional Equities said in a note.

The brokerage’s top picks in the sector are UltraTech Cement, Birla Corp, Nuvoco Vistas, JK Cement and JK Lakshmi Cement.

So, analysts have not hard pressed the “sell” button, and recommend staying invested in quality counters and buying the dip.

“I will prefer to go with the industry leaders, so I feel UltraTech is definitely worth buying at current level,” said Sudip Bandyopadhyay of Inditrade Capital.

“If somebody wants to play cement as of now, I would recommend buying UltraTech, and

have a one year-horizon. I don’t think you will regret that,” he said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)