Do signs tell a tale? Yes, we are talking about the economy. There is this oft-used nomenclature of lagging indicators and leading indicators, and as the names indicate, the lagging ones help to validate the situation in the recent past, while the leading ones help project immediate future trends. So, in a manner of speaking, both tell tales, albeit of different times. And who doesn't know, that it is the future that interests us more, not just because of the uncertainties and mysteries associated with, but chiefly because well-educated projections of future enables us to make better action plans and achieve better results down the line.
Now, cement industry is very intricately intertwined with our economy. As we know, growth forecasts of cement consumption have been always predicated on GDP growth numbers, with a multiplier. So, at any point of time, a discussion about the economy, and the emanating tell-tale signs, are never ever out of place for the cement industry watchers. This is particularly so, when the industry has had a rather unexciting and tentative three quarters this year. Cement consumption growth trend has not been consistent, and cement prices have moved listlessly in some regions, sometimes sideways, sometimes up or down. The improvements in financial performances of cement players, if any, have been more due to cost-side management than due to a real return of pricing power driven by strong consistent growth. The writing is also on the wall, that the eagerly awaited GST reduction is not coming any time soon, given that the direct tax collection is showing a decline for the first time in two decades, and that the government has no fiscal elbow room at all. But if not for GST concession, the industry seems to be waiting for something else, may be some stimulus of some kind, on the demand side.
May be, it is infrastructure projects that the industry is expecting. The government announced Rs 102 lakh crore of infrastructure projects over the next five years with some fanfare, of which some would come from central projects, some from states, and the remaining from private sector investments. Is this the push that the cement sector has been waiting for? Disappointingly, this looks more like an old wine in a new bottle, because in the 2019/20 budget speech, a similar number was announced in July 2019; to quote a press report at that time,"In a massive push for boosting infrastructure, the Union government announced .... that it intends to invest Rs 100 lakh crore (around $1.46 trillion) in the sector over the next five years". Therefore, this announcement per se, is unlikely to have any new impact.
May be, it is then the growth of rural demand of cement, that we are looking forward to. Individual home building activity is anyway a much larger segment of cement demand, compared to infrastructure sector, based on current reckoning. Every expert has suggested measures to fire up consumption, and especially rural demand, to turn around our ailing economy, and if the budget can somehow manage to trigger that, cement companies will be glad. However, what do the leading indicators tell us about rural demand and/or household consumption? The data on inflation, unemployment rate, real growth in wages (inflation corrected), domestic savings, gross capital formation " all these tell a rather depressing story. More specifically, further analysis shows the fall in the household savings is primarily due to a sharp fall in physical assets (primarily house, land, farm implements and includes valuables as well) - from 16.3 per cent of the GDP in FY12 to 10.6 per cent in FY18.
But then, all these signs ( read : indicators ) that are expected to tell a tale, may soon tell a much more "convenient truth", once our government is done with a new set of proposed tweaks on data processes. However, mere data optics may not be the solution the cement industry would have been waiting for.