Union Minister Nitin Gadkari has accused steel and cement companies of forming cartels and keeping prices artificially higher. Investors in cement companies appear unfazed by the latest salvo, with the stocks rebounding from the lows of the day. A similar reaction was witnessed last month too when the Competition Commission of India had conducted searches at the offices of major cement companies. Shares of cement companies were under pressure for a couple of days but then began climbing with the rest of the market.

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Investors may have reason to be indifferent to the latest development. An earlier CCI order penalizing cement companies 0.5 times their FY10 and FY11 net profits are still hanging fire in the Supreme Court. The companies had paid 10 percent of the fine in 2018 but under protest.

But investors should take note that cement companies appear to be under far more scrutiny in this round of investigation. Electronic and physical data were seized during the searches in December, and the CCI has hired private IT experts to decode the data.

The CCI offensive does appear to have pushed the cement companies onto the back foot. There were no price hikes in December. Also, cement companies traditionally hike prices around mid-January, when construction activities pick up post the festive season. Indications are they may be wary of doing it this time, for fear of appearing to be defying the authorities.

On their part, cement companies claim that rising input costs—notably that of petcoke — is forcing them to raise prices. With the economy in recovery mode, higher volumes should partly cushion the earnings from the pressure on margins.

Cement stocks have had a good run in the recent rally, but a possible cap on cement prices may hold back investors from paying a premium for them.

(Edited by : Abhishek Jha)

First Published:Jan 11, 2021 2:03 PM IST