Hindustan Copper, Vedanta, other metal stocks slip up to 2% after sharp gains. Should you buy the dip or avoid?

Shares of metal companies dropped up to 2% on Tuesday, after recording sharp gains in the previous session, with analysts advising investors to view profit-booking-led corrections as buying opportunities.

Nifty Metal dropped half a per cent amid an overall bearish market sentiment on Tuesday, with NMDC shares falling more than 2% to lead losses. Hindustan Copper shares lost over 1%, after rallying around 8% in the previous session.

Today’s fall in metal stocks comes as metal prices corrected after hitting multi-month highs the previous day. Copper prices fell as the market digested a string of disappointing economic data from China, and the US-Iran truce expired without a longer-term peace deal. This comes a day after the red metal hit its highest in more than six months on Monday amid worries around availability on the London Metal Exchange, where inventories are at their lowest since February.


Gold and silver prices also declined in the domestic market, although the precious metals extended gains in the international market.

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Should you buy metal stocks?

Metal stocks are reacting to a decent recovery in underlying metal prices, said Sunny Agrawal, Head of Fundamental Research at SBI Securities. He noted that copper, aluminium, zinc and silver prices are up by 6%, 4%, 8% and 12% respectively over the last month.

“Investors can selectively participate in a few names like Nalco and Hindustan Zinc. Traders should adhere to stop loss to factor in sudden correction in the underlying metal prices which is a function of many factors including dollar index, global demand supply etc,” Sunny Agrawal from SBI Securities said.

Technical view

One of the better ways to assess the outlook for a basket of stocks is to study the corresponding sectoral index, as it provides a broader representation of the underlying group, said Hitesh Rathi, Technical Analyst at Angel One. “In this context, the Nifty Metal index had been trending lower since May this year, with the sectoral index forming a 100% bearish pole on its 0.25% × 3 point and figure chart. This resulted in a correction of over 10% in the index, translating into a sharper decline across several metal stocks,” he explained, adding that the technical setup now appears to be turning constructive.

The sectoral index seems to have established a strong support zone in the 12,500–12,400 band, underscored by the formation of a weak breakout on its daily 1% renko chart, he added. Following this development, the index has already rallied by over 5% in a relatively short period, indicating a meaningful improvement in momentum.

The combination of a well-defined support zone and the bullish breakout formation suggests the presence of strong demand at lower levels and points towards a potential reversal in the broader trend, according to the analyst. “That said, given the sharp upmove witnessed recently, chasing momentum at current levels may not offer the most favourable risk-reward proposition. Instead, any retracement towards the 12,800–12,700 band should be viewed as an opportunity to accumulate select metal stocks, with the broader sectoral setup now turning increasingly constructive,” Rathi concluded.

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(With inputs from agencies)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)