Shares of metal companies and manufacturers are shining, with the BSE Metals index at a 17-month high.
On Monday, the index rose 613.92 points or 2.72% — the biggest gainer among sectoral indices — to 23,156.06. The previous high was 23,595.15 on April 11, 2022. It has comfortably outperformed the benchmark Sensex, gaining 7% over the past month, compared to a 0.14% fall in the benchmark.
Multiple policy measures by China in recent months to revive the ailing economy have come as a shot in the arm for global commodity prices, with global market players saying the measures will provide the much-needed boost to its property sector.
“China’s stimulus to aid its property sector will lead to a revival in demand and better pricing globally for metals. Additionally, the US Fed seems to be at the fag end of its rate hike cycle. No further rate hikes would lead to pressure on the dollar which, in turn, would lift prices as they have an inverse co-relation to the dollar index,” said Sunny Agrawal, Head of Fundamental Research, SBICAP Securities.
Analysts tracking metals also believe valuations are at comfortable levels, which is why the risk-reward scenario is favourable for investors at present.
A report by JM Financial says Indian HRC steel (hot-rolled coil) prices witnessed an increase in August thanks to the stimulus initiatives undertaken by China. Domestic HRC prices shot up by Rs 1,000 a tonne on a month-on-month basis, averaging Rs 56,300 a tonne, following the price cuts in June-July. Domestic consumption remains robust, it says, with an 18% YoY and 7.4% MoM growth witnessed during July.
Nalco was the biggest gainer on Monday, rising more than 6%, with SAIL gaining close to 6% and NMDC jumping over 5% as well. All three hit their 52-week highs on Monday in intra-day trade.
The JM report added that while exports remained under pressure owing to the weak global demand, imports rose at the same time, largely on account of local steel prices trading at a premium of Rs 4,100 a tonne to China and Rs 3,500 a tonne to South Korea, respectively.
Nevertheless, margins are expected to improve marginally in the second quarter, aided by the lower coking coal consumption cost ($50/tonne) being partially offset by lower realisations (down Rs 2,100 per tonne sequentially).
Agrawal pointed out that the outlook is strong for the sector over the longer term, with steel capacity likely to rise from from 120,000 tonnes to 250,000 tonnes a year over the next few years.
Tata Steel, which was up 3.6%, is expected to benefit from some aid with respect to its UK steel plant, say analysts. It had hit its 52-week high on Monday in intra-day trade. Besides, JSPL had also hit its 52-week high on Friday. The company set to gain from capacity addition at its Anugul plant in Odisha.