BSE Metal soars nearly 40% in 2017 on price rise, outpaces Sensex, Nifty
Mumbai: Metal stocks have dazzled this year as prices of base metals climbed. Data showed BSE Metal index rose 39.14% in 2017 so far, outpacing benchmark indices Sensex and Nifty, which rallied nearly 23% this year.
Outperformance in metal stocks makes BSE Metal one of the best indices in 2017 as valuation-wise it is still available at cheaper rates. Price-to-earnings (PE) ratio of BSE Metal index is at 12.19 based on 2018 earnings, whereas BSE Telecom index, which surged 23.86% in 2017, is available at 230.58 one-year forward PE.
Pankaj Pandey, head of research at ICICI Securities Ltd, said gain in metal prices has driven appetite for metal stocks in India. “Improvement in prices has also translated to better numbers on the balance sheet of these companies,” he added.
According to Kishore Narne, associate director, commodity and currency, Motilal Oswal Securities Ltd, base metals were on a tear in August with most of metals closing at multi-year highs. He said that copper rose to its highest in almost three years, after acceleration in Chinese manufacturing boosted outlook for demand, while aluminium, nickel and zinc were on track for their biggest monthly increases since September 2012. “Investors fleeing currency volatility, financial market turmoil and inflation pressures have also piled into industrial metals in recent months, seeking safety in hard assets,” Narne added.
JM Financial Institutional Securities Ltd said in a 12 September report that domestic steel prices exhibited a strong uptrend in line with global prices in September. It said that non-ferrous prices saw strong growth of over 7% (month-on-month) driven by production curtailment initiatives by China and a continued drawdown of inventories. “Year-to-date steel imports registered a positive growth after a long gap, indicating lower effectiveness of definitive anti-dumping duty vis-à-vis the minimum import Price (MIP). Capacity cuts in aluminium augur well for the price outlook,” JM Financial said.
Among stocks, Jindal Steel & Power Ltd (up 106.6%), Tata Steel Ltd (up 76.48%), JSW Steel Ltd (up 64.96%) and Vedanta Ltd (up 62.01%) are the top gainers in the Sensex this year.
Analysts feel that larger companies are likely to continue to be at an advantage as they continue to expand their market share, albeit at the expense of marginal ones. Edelweiss Securities Ltd said in a report on 8 September that earnings will receive further boost from steel price hikes of Rs1,500-2,000 per tonne, with another hike of Rs1,000-1,500 per tonne expected this month.
Some analysts believe that the benefit of 4.5% year-on-year (y-o-y) steel consumption growth in August did not flow to domestic companies as imports zoomed 62% (y-o-y), the highest level since March 2016.
Edelweiss Securities’s channel checks suggest that the import surge was on account of material booked during April-May 2017 when Chinese exports’ price dropped to $425-430 per tonne. “Going ahead, imports volume is likely to dip as import parity gets restored with recovery in Chinese export prices. We also find that Indian domestic players are expanding their presence in exports market. Both these factors are likely to help domestic players reap benefits of operating leverage in the ensuing months,” it added.
Narne agreed that most of base metals prices are trending upwards. “The trends show underlying strength and dips have been limited and well supported, suggest robust markets, but high prices are likely to attract more selling from profit-taking and pricing. We remain bullish for the base metals complex, but would not be surprised to see some price-wise correction,” Narne added.
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