Cement stocks a long-term buy; cement demand to pick up post monsoon: BP Singh, Pramerica MF

In a chat with ET Now, BP Singh of BP Singh, ED & CIO Equities, Pramerica MF, shared his views on cement sector. Singh also talked about companies which would gain from coal auctions.

ET Now: Many cement stocks have performed extremely well this year. Some of them have bagged mines as well.

BP Singh: Well one thing which I clearly see is that government is going ahead very aggressively on infrastructure drive. Besides infrastructure, there is going to be the budget housing demand, etc. So the cement sector seems well placed in terms of demand. The demand would pickup post monsoon. Though in the short term, we may see some softness as monsoon draws near. Post monsoon this particular sector is likely to do very well and those who have a medium-to-long term perspective, for them this particular sector will do well and we are looking at this particular sector very positively.



ET Now: I am interested in your thoughts on some of the coal auction beneficiaries as you are mentioning that it is time to probably shift the bias from the defensives to the cyclicals or the capital intensive companies. What did you make of the auctions, were there clear any winners and would you bet if at all on metal/power companies?
BP Singh: Well metal companies are certainly avoidable.

The sectors where we are focusing at this point in time are the ones which are consuming metals. It is because we are seeing the price declines over their end.

So, we clearly see a margin enhancement for the companies which are consuming metals. For power companies, some clarity is required in terms on what impact they will bear due to coal block auctions. But, the area where we are focusing on covers the two aspects.

Margins will enhance due to fall in commodity prices. In addition, since the commodity prices have come down, the working capital requirement for companies will also come down. What that means is that there is a release of liquidity in the system.

Therefore, we will continue to have a comfortable liquidity situation in near future as well as in the medium term.

Irrespective of whether the central bank goes ahead with rate cuts, the liquidity in the system will remain soft because of the lesser requirement of the working capital. These two factors are going to drive earnings growth for the interest rate-sensitives as well as the capital goods sector. That is reason why we are focusing on those sectors where the rules and regulations are clear, the order book is now coming back, and capex is likely to pick up.