Metal stocks: The Nifty Metal index closed in the green for the fifth straight day on Thursday, September 11, gaining nearly 2% and rising to its highest level in nearly 11 months. During this period, index stocks have also gained up to 6%, with Adani Enterprises among the top leaders. Meanwhile, others like NMDC, Nalco and SAIL have jumped over 3%. Tata Steel, JSW Steel, Welspun Corp and Hindustan Copper have risen between 2-2.7%.
With the current rally underway in the metal pack, the index remains on course to snap its two-month losing run during which it lost over 4%. So far in September, the Nifty Metal index has jumped 7%.
Key factors behind the rise in metal stocks
The rally is led by multiple factors, ranging from China’s production cuts, India’s proposed extension of safeguard duties, along with Fed rate cuts and GST reforms.
China will push to cut steel production between 2025 and 2026 as part of its anti-involution plans, with an indication of production cuts of 30-50mt (3-5%). This reduces oversupply in the market as it is the largest steel producer in the world, said Vaqarjaved Khan, CFA, Sr. Fundamental Analyst, Angel One.
Meanwhile, the Directorate General of Trade Remedies (DGTR) has recommended final imposition of a safeguard duty on imports of certain flat steel products for three years to protect domestic manufacturers from a sudden jump in inbound shipments, providing support to steel stocks like Tata Steel, SAIL and JSW Steel, among others.
PL Capital further noted that while GST on steel and aluminium remains unchanged at 18%, recent rate adjustments in related sectors are expected to support metal demand.
The government has cut GST on auto, consumer durable goods and household items, all of which use steel, aluminium, iron and other metals, giving a leg-up to metal stocks.
The recent policy changes in China (anti-involution) and India (the proposed extension of safeguard duty by 3Y and GST recalibration) are aimed at improving the industry structure and reviving profitability, said Emkay Global.
Moreover, the US dollar has weakened of late, ahead of the US Federal Reserve’s anticipated rate cut at its meeting next week, lending support to commodities, including metals.
Demand improvement ahead for metals
With the bedrock of policy support, Emkay Global said that we are entering a seasonally strong phase, supported by demand recovery and inventory restocking in China and India.
If the seasonality analysis of the last 30 years holds up this time as well, we could be looking at a rebound in commodity prices and metal-exposed equities, said the brokerage. The resilient metal stocks could, in fact, build on gains heading into the year-end, it added.
“Supply cut in China helps in reducing of dumping of low-grade steel in other parts of the globe. This helps Indian producers in domestic as well as global markets. Demand side domestically continues to remain strong, along more inclusive government policies for the sector will help the sector going forward. However, fluctuation in raw material cost or a global slowdown can be a risk for the sector,” said Khan, as his sectoral outlook remains positive.
Metal stocks to buy
Tata Steel and SAIL remain the top metal stock picks for analysts. Emkay reiterated its positive stance on the ferrous space, calling for a recovery within mid-cycle. Tata Steel and SAIL remain its favoured picks, with share price targets of ₹185 and ₹155, respectively.
It sees NMDC benefiting from the seasonal demand upturn.
Khan also recommends betting on Tata Steel and SAIL to ride the tailwinds in the metal pack. “On account of recent up in prices, valuation looks slightly stretched; any correction in them can be seen as a good opportunity for value investors,” he advised.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
