India's FY21 cement consumption expected to drop by over 15%

India's cement consumption is expected to drop by more than 15 per cent in FY21 due to weak property demand and a sluggish construction cycle, Fitch Ratings said.

Accordingly, more than 65 per cent of domestic cement demand is driven by the housing segment.

The ratings agency said that steel demand is likely to fall by around 10 per cent supported by a lower hit to demand from other sectors.

"Fitch expects property developers' operating cash flow to deteriorate on weak demand stemming from low consumer confidence caused by business uncertainty and unemployment concerns, despite falling home-loan interest rates and cuts in transaction costs by some local governments," the ratings agency said in a report.

"Lower labour availability and disrupted raw-material supply chains are also leading to construction delays."

According to the report, Reserve Bank of India's recent measures, including loan restructuring, moratoriums and relaxed lending limits, provide temporary funding relief to the property sector.

"However, the underlying appetite of financial institutions to lend to the sector is likely to remain weak until there is a broader improvement in the sector's operation, with better end-user demand and pricing support," the report said.

As per the report, Fitch expects developers with weak financial profiles or a focus on high-end projects, who are unable to avail the benefits of the reserve bank's restructuring scheme, to be most affected.

"Narrower capital access will lead such developers to tie up with large and reputable ones with strong financial profiles, creating significant opportunities for consolidation and market share gains for the stronger developers," the report said..