Global demand-supply mismatch post-recovery led to rally in metal stocks: Mitul Shah of Reliance Securities

Market Outlook

Globally demand-supply mismatch during the post-recovery phase was the key reason behind positive traction for metal stocks, Mitul Shah, Head of Research at Reliance Securities said in an interview with Moneycontrol’s Kshitij Anand. edited excerpts:

Q) Nifty50 remained volatile throughout the week but managed to close above 15800 levels. What led to the price action on D-Street?

A) Nifty50 remained volatile during the week based on the quarterly performance of largecap companies reported during the week.

Few companies delivered a subdued performance like Tata Motors, MSIL, while IT companies continued outperformance. These results and few global factors on the third wave are driving action on D-Street.

Q) FIIs remain net sellers pulling out more than Rs 19000 cr from the cash segment of the Indian equity markets. What is leading to panic in FIIs and what do the options data suggest?

A) FIIs withdrawal from Indian equity is fueled by movement in US markets, currency movement, and economic development in global markets.

Moreover, fear of the third wave in few parts of India coupled with valuation discomfort led to profit booking in few large-cap stocks.

Below par results reported by few large cap companies and weak commentary also resulted in lack of investors’ confidence recently.

Q) What is your call on small & midcaps which have remained slightly more resilient?

A) Small and midcap companies outperformed strongly in the last 4-6 months with catch-up in valuation.

We believe despite sharp price run-up, many quality smallcap/midcap companies are below historical peak valuation providing decent potential upside from the current level.

Q) Sectorally, metal showed a strong move, up over 8% in the week gone by. What is fuelling rally in metal space?

A) Globally demand-supply mismatch during post recovery phase is the key reason behind positive traction for metal stocks.

Production level for metals in China is still below pre-Covid level, while sudden demand spurt during recovery from pandemic led to a wider gap between demand-supply, which supported the positive move for metal stocks globally.

Q) Your investment ideas that are still looking attractive?

A) We are positive on Bharat Forge, Ashok Leyland, JK Lakshmi Cement, HCL Tech and Tech Mahindra.

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