FII pie in cement firms hits limit

Foreign institutional investors (FIIs) have reached the maximum permissible limit for investments in most frontline cement companies.

The Reserve Bank of India today notified that FIIs can no longer make fresh purchases on the Grasim Industries counter, as their investments in the company has already reached the maximum permissible limit of 24 per cent.

As a result, the Grasim stock slipped 1.5 per cent to close at Rs 1335.15 on the Bombay Stock Exchange on Monday. In case of ACC, FIIs hold 23.27 per cent stake against the limit of 24 per cent, while in Gujarat Ambuja, they have 28.70 per cent as on December 31, 2004, according to data posted on the BSE website.

According to sources, FIIs currently hold 30.5 per cent stake in Gujarat Ambuja where the FII limit is 40 per cent, after the company raised this limit through a special resolution.

FIIs have lapped up frontline cement sector stock in the last one year in anticipation of strong demand growth and firm prices.

In the last one year, the FII holding in Gujarat Ambuja has gone up from 20.95 per cent to 28.70 per cent, while in Grasim, the FII exposure has gone up from 19.53 per cent to 23.69 per cent as at the end of December 2004.

FIIs have bought into selected second-rung cement stock as well in the last one year.

Their holding in Birla Corporation has gone up from 0.60 per cent at the end of December 2003 to 7.73 per cent at the end of December 2004. In India Cements, the FII holding has gone up from 6.16 per cent to 7.70 per cent, while in Shree Cement it has gone up from 1.23 per cent to 2.49 per cent during the same period.

Only in the case of Mysore Cements, the FII holding has gone down from 2.48 per cent to 1.91 per cent in the last one year.

A cement sector analyst said, "The domestic cement sector is poised for an upswing. The calendar year (2004) recorded an overall demand growth of around 8 per cent. With the demand supply gap closing in most of the regions across the country, this growth can only get better."

Crisil MarketWire adds: Meanwhile, Frontline cement shares are expected to rise this week because of a rise in prices across the country, according to dealers and analysts.

However, some profit sales at higher levels is not ruled out as the shares have risen sharply over a month, they said.

Prices in Mumbai and Gujarat rose by Rs 3 and Rs 5 per 50 kilogram bag, respectively on February 1. This was followed by rise in prices in south by Rs 8-10 per bag.

Dealers feel cement companies may further raise prices in Gujarat by Rs 5 per bag from February 15.

"The price hikes will keep up fund flow in cement stocks," said a portfolio manager with a foreign brokerage house.

According to SSKI Securities Pvt Ltd., the recent price hikes are likely to sustain till June when the monsoon begins.

"We expect the cement prices in Delhi, Chennai and Hyderabad to sustain till the monsoon begins in June 2005," said a research note from SSKI.

These price hikes are seen benefiting cement companies having an exposure to the north and south including Gujarat Ambuja Cements Ltd., Grasim Industries Ltd., Associated Cement Cos. and UltraTech Cement Ltd.

Dealers, however, said unless investment momentum by funds is maintained in the cement stocks, the shares may witness some correction next week.

"Cement shares have risen too much too fast," said Sandeep Shah, head of research, Techno Shares and Stocks Ltd..

However, he feels second-line cement stocks (potential take-over targets) may still see huge run-up.