The benchmark indices might have closed flat to lower for the month of April, but the metals space remained in the spotlight with 9 out of 10 stocks in the index registering returns of over 10-50 percent in a month, according to data collated from AceEquity.
Metal space has been in the spotlight throughout 2021, compared to the single-digit return seen in benchmark indices.
The S&P BSE Metal index rose over 50 percent so far in 2021, compared with a two percent gain seen in the S&P BSE Sensex during the same period.
Experts are of the view that the rally in the metal space will continue for some more time; however, investors sitting on gains can book some profits.
Deepak Jasani, Head of Retail Research, HDFC Securities told Moneycontrol: “Commodity stocks, including metals, have fared well over the past few months on expectations of large infra spend by the US and China, low stocks, minimal capacity additions in the past few years and select disruption in mining activities across the globe.”
“Even though these stocks have risen quite well so far, they could still see some more upsides from here on. But investors have to be careful to time their exit, as these stocks are notorious for their wild swings on either side based on evolving global demand and supply situation,” he added.
Stocks that rose in double digits in May include names like JSW Steel, SAIL, Jindal Steel & Power, Tata Steel, NALCO, NMDC, Vedanta, Hindustan Zinc, and Hindalco.
“JSW Steel, Sail and Tata Steel lead the pack by rising 19-42 percent, displaying the dominance of large caps in the sector. The movement was majorly due to the pickup in global demand with China’s steel exports rising by 16 percent year-on-year (Y-o-Y) to 7.5 million metric tonnes (mmt) in March 2021, as against 6.48 mmt in March, 2020, Mohit Nigam, Head, PMS, Hem Securities told Moneycontrol.
“There was a substantial rise in export prices in March over January and February prices (from $ 690/t to $ 840/t), which were a shot in the arm for the top line of the companies,” he said.
Indian hot-rolled coil (HRC) and cold-rolled coil (CRC) prices have been hiked for the second time in April 2021; deliveries and currently stands at Rs 63-64k/t for HRC and Rs 74-75k/t for CRC.
Meanwhile, the World Steel Association (WSA) has projected India’s steel demand for calendar year (CY) 22 at 112.3 million tonnes (mt) (or 5.9 per cent Y-o-Y), up from 106.1 mt in CY21.
Bull run among industrial metals
Experts give credit to the bull run seen in some industrial metals behind the sharp move witnessed in Indian metal stocks. The momentum could well continue in the short term and that is why some part of the allocation is moving towards this sector.
The month of March saw a notable change in the sectors and stock allocation of funds, according to a Motilal Oswal report.
On a month-0n-month (M-o-M) basis, the weights of PSU Banks, Metals, Oil & Gas, Private Banks, Utilities, Cement, NBFC, Capital Goods, Real Estate, Retail, and Infrastructure increased.
Said Abhishek Chinchalkar at FYERS: “Nifty Metals index continues to be in an immensely powerful uptrend and is up nearly 50 percent since the start of CY21. Such a swift up move in metal stocks has coincided with a stellar bull run among industrial metals.”
“Globally, copper has risen to the highest level in over a decade; zinc and aluminium have rallied to three-year high, while iron ore has surged to historic highs. The up cycle among metal prices has been fuelled by the continued surge in global demand, tightening supplies, ultra-accommodative monetary policies, fiscal support, and a weak dollar,” he added.
All these factors combined have played a key role in driving metal stocks higher over the last few months. China’s policy change on removal of VAT rebates on 146 steel products from next month, suggests at a possible cut down in exports and encouragement to imported steel.
Naveen Kulkarni, Chief Investment Officer, Axis Securities said that the rally in metals and commodities is strong and seems very likely to continue over the next few months. As a result, commodity stocks will continue to perform strongly.
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