CHART OF THE WEEK 📈
Cement demand is usually highly cycle, with a large dependency on monsoons and infrastructure projects. The year after a good monsoon is usually a good year for cement sales too. Farmers get their bounty from a bumper crop, and are able to spend the money on redoing their houses.
With infrastructure, there are a few things which make a very strong case for Cement stocks to do well over the next couple of years:
The current government has been focused on infrastructure development. The PMAY schemes have driven a significant amount of cement consumption. Schemes like the PMAY will continue driving growth.
Copious amounts of investment has also gone into building of roads, dams, metros, airports and everything associated with infrastructure.
As a pattern, most governments spend aggressively on infrastructure in the 2 years before a general election. The intent may be to play on a recency effect, where people see development happening around them, and probably take that into consideration when voting.
This leads to strong growth in cement sales for two years before the election. With the general elections coming up in 2024, we have already entered that phase. Post the monsoons, when work gets halted, we might just see the same trend play out all over again.