Is there a case to buy into metal stocks now? Deven Choksey explains

Deven Choksey, MD, DRChoksey FinServ Pvt. Ltd, says going forward, he is extremely bullish on the prospects for metals as commodities – both ferrous and non-ferrous. The important trigger points that are, on one hand, structurally the energy cost is coming down. Should the war-related situation get over or come under control or get reduced,, there is going to be further adding into it. If war-affected areas start construction, steel demand is expected to go up.


The shine of diamond is going away, but the glitter of gold is evident. Indians are buying.
Deven Choksey: The wedding season is basically responsible for the higher numbers. On one hand, gold prices are remaining at a higher level; on the other hand, the consumer has money in hands to spend and that is where you are seeing the fantastic festive season that is benefiting some of these companies. Whether there is an opportunity to invest into them, I am not too sure. Whether there is a momentum into them, definitely there is.


The opportunity for investment would be there when the valuations are also correspondingly available to your advantage when you want to invest. In this case, most of the things as far as growth is concerned in many of these companies, everything is being fully factored in and maybe there is not even a slightest margin of safety available in the price today. If at all, some of these companies slip from the level at which they are, and probably this is going to be a challenge.

Though I am not an expert on the subject of gold, we typically say that when you are trading into the gold related activities, you end up buying and at the time, you should be selling. That is how you normally do but that is not something which easily works in this kind of environment. But these are the limited points. The valuations probably are not immediately convincing to me.

Is there a case to buy into metal stocks because excesses have been created on the downside, which is that demand is low, stocks have done nothing, China is coming back, interest rates are moving down. Is it a good time to trade back into metals?
Deven Choksey: In fact, indeed. Going forward, we are extremely bullish on the prospects for metals as commodities – both ferrous and non-ferrous. The important trigger points that we have calculated out here, on one side structurally the energy cost is coming down. Should the war-related situation get over or come under control or get reduced,, there is going to be further adding into it.

Most of the companies have started mixing the green power into their power requirement in the energy space, though it may not be a substantial percentage at this point of time as far as their production requirement is concerned. But in my viewpoint, with the mix of green power coming in, one would definitely expect the cost would be under control. On the other hand, given the kind of growth momentum that we are seeing in the economy because of infrastructure spending, the requirement for steel, in particular steel, is remaining very high.

Should the war-affected areas start construction, globally steel demand is expected to go up. A commodity business, there is always uncertainty about timing, but structurally as a direction, this is probably a good time to buy into some of the good quality names in the portfolio.

Where are you on this solar theme? Suddenly anything which has got to do with solar, solar roofs, solar panels, solar EPC is in demand. Winter may be approaching, but the sun is shining bright for this sector.
Deven Choksey: There is a reason to remain bullish about the prospects going forward as well. On one side, the government is spending money. The renewable power plants are coming up, solar, wind combined also included, they are coming up and that is where probably the demand for implementation of the projects will also remain high. So, if we had to categorise in buckets, probably if on one side you have the power producers using renewables, and the distribution of the power, which are capital intensive businesses, infrastructure businesses.

On the other hand, a whole lot of ancillaries, starting from the design company to the product manufacturing companies would be there. Unfortunately, the market is pricing them significantly higher as a premium level and maybe 2026-27 valuations are discounted at this point of time in most of the companies' cases. That is what is not comfortable.

If the businesses are doing well, they are going to deliver well. Some premium definitely is justified. But today the premium is through the roof and that is where one is probably not fully convinced, even though the fundamental prospects remain extremely high for this business.