Metal and auto stocks were worst hit in FY20 amid broad sell-off2 min read . Updated: 07 Apr 2020, 12:01 AM IST
- Benchmark indices Sensex and Nifty, in contrast, lost 23.8% and 26.03%, respectively, in FY20, the worst since FY09
- Domestic demand outlook remains weak with construction and auto sectors facing demand headwinds
MUMBAI : Metal and auto stocks were the worst hit in the just-ended financial year as investors dumped equities in favour of less risky bets following the global outbreak of covid-19.
The BSE Metal index lost 49.69%, while the BSE Auto index plunged 42.92% in the last financial year. The outbreak in China in December led to a sharp decline in metal demand and overall prices, while the slowdown in the Indian economy for several quarters drove sales of automobiles lower during the fiscal.
Benchmark indices Sensex and Nifty, in contrast, lost 23.8% and 26.03%, respectively, in FY20, the worst since FY09.
For BSE Metal index, FY20 was the worst in two fiscal years. The index lost 14.76% in FY19, while it had gained 12.86% and 56.54% in FY18 and FY17 respectively. Among stocks, Tata Steel, JSW Steel and Jindal Steel lost 48.21%, 49.99% and 54.22%, respectively in FY20.
Global metal prices fell sharply, especially in the last three months of FY20.
“Far East hot-rolled coil (HRC) price has fallen 7-8% and export prices for India, China, and the Black Sea have fallen 11-13%. This does not augur well for domestic HRC prices when the lockdown is over as landed price of imports from China is at par with domestic HRC price," said analysts at Edelweiss Securities Ltd.
Whenever China’s imported price falls to anti-dumping duty level, domestic HRC price also dips, anecdotal evidence shows, according to analysts. Domestic demand outlook remains weak with construction and auto sectors facing demand headwinds while export HRC price from India is trading at an 18% discount to domestic price, the analysts said.
“This will result in higher competition in domestic market as exports are not lucrative. Further, if JSW Steel and Tata Steel resort to exports, margins are likely to be hit significantly. Longs look relatively better, though prices are not immune to weak domestic demand," Edelweiss said.
Steel and allied activities, including mining, have been covered under the Essential Services Maintenance Act, but the non-ferrous industry has largely been out of the purview, according to channel checks by analysts.
Hindustan Zinc has shut all major operations at its plants and mines and is only running essential services.
Hindalco has closed all operations, barring essential activities at its plants and mines.
Steel companies are still dependent on road movement for various other minor raw materials such as ferro alloys. “Hence, we expect all major steel plants to reduce operations significantly over the next 7-10 days," said analysts at Emkay Global Financial Services Ltd.
As such, even the first quarter of FY21 is expected to be a washout for most metal companies.
Meanwhile, the BSE Auto index slipped 21.75% in FY19 and gained 9.29% and 22.28% in FY18 and FY17 respectively. Among stocks, Tata Motors lost 59.24%, while Mahindra and Mahindra fell 57.58% and Ashok Leyland dropped 52.85% in FY20.
Auto sector volumes fell sharply across segments in FY20 led by inventory correction by automakers, price increase due to Bharat Stage-VI transition amid a weak economic scenario, and the impact of the covid-19 pandemic during March 2020, said analysts.
“Private vehicle industry volume is expected to report more than 45% year-on-year decline in volumes in March 2020. Also, the commercial vehicle, two-wheeler, and tractor industry witnessed a huge decline amid the covid-19 outbreak," said Kotak Institutional Equities.
The bulk of the billing happens towards the latter part of the month, which was adversely affected by the sudden lockdown from 25 March, analysts said.