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Since 1 October, the BSE Metal index is up 10% compared with a 3% gain on the benchmark BSE Sensex. Photo: Reuters
Since 1 October, the BSE Metal index is up 10% compared with a 3% gain on the benchmark BSE Sensex. Photo: Reuters

Have metal stocks bottomed out?

Shares of metal companies have rallied 20-30% since the start of this month, in response to a rebound in global metal prices

Mumbai: Shares of metal companies have rallied 20-30% since the start of this month, in response to a rebound in global metal prices. Analysts, however, remain cautious and say it’s too early to call a bottom for the sector.

Since 1 October, the BSE Metal index is up 10% compared with a 3% gain on the benchmark BSE Sensex. Vedanta Ltd has been the top gainer over the period, with a 30% rise. Tata Steel Ltd has added 19%, while Hindalco industries Ltd. and Jindal Steel and Power have risen 24.2% and 19.06%, respectively.

Stock prices have rallied in response to a rebound in industrial metal prices on global exchanges.

Zinc surged 12% to a two-month peak on Friday after commodities group Glencore said it would cut its zinc output by a third, sparking a short-covering rally across the board, Reuters reported. Other industrial metals have also seen gains this month. For the month-to-date, LME Copper has gained 4%, LME Aluminium is up 2.8%, while LME Zinc has gained 8.8%.

Still analysts say it is not easy to say whether metal stocks will be able to hold on to recent gains.

“It is difficult to take a call if the metal stock prices have bottomed out. We need to see if the recent rally sustains," said Vaibhav Sanghavi, managing director of Ambit Investment Advisors Pvt. Ltd.

A slowdown in the Chinese economy, the world’s second largest, has put pressure on base metal prices. Earlier this month, the IMF (International Monetary Fund) downgraded the world economic outlook, leading to worries over demand for commodities.

“We need to see when China stabilizes before we can conclude that the metal stocks have seen an intermediate bottom," said Sanghavi.

“In the short term, we are closely following the global developments. Globally, commodity prices, including oil, aluminium, zinc, have rebounded from lows. There has been some respite from expectations that the Fed may not hike interest rates this year. Also, globally commodities were in an oversold situation," added Sanghavi.

Metal shares have been among the worst performers on the domestic bourses so far this year. Since the start of 2015, the BSE Metal index is down 30%, making it the worst performing sectoral index.

Vedanta shares have declined 48.86% so far in 2015, Hindalco is down 44.7%, while Tata Steel has erased 35.7%. Jindal Steel and Power is down 52.7% in the same period.

An analyst with a domestic brokerage firms who declined to be identified said that these stocks continue to face headwinds as demand is still to pick up. There are, however, some short term positives.

“It seems like we may not have a rate hike in the US this year. Glencore announcement of production cut in zinc, led to a rally on Friday," the analyst added.

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