Strong macro data, China stimulus help metal stocks scale new peaks

Mumbai: An economic stimulus in China and better-than-anticipated growth at home in the June quarter drove metal stocks to new highs Friday, with analysts saying the sector would continue to be buoyant ahead of the state and general elections.

They recommended Tata Steel, Hindalco and Jindal Steel, indicating opportunities for gains in this typically cyclical sector.

Tata Steel, Jindal Steel, JSW Steel and Shyam Metalics recorded gains exceeding 3% on Friday, while SAIL and Nalco gained 7% and 5%, respectively. Jindal Steel, SAIL and Nalco shares surged more than 10% in the last five trading sessions.

"Robust domestic demand, coupled with gradual capacity expansion by local players, positions the Indian metal sector to confront global challenges stemming from China's economic woes," said Ashutosh Mishra, head of research at Ashika Institutional Equity. "In our view, the party isn't over in the metal sector; we still maintain our positive view for Tata Steel, Hindalco, and Jindal Steel."

India's hot rolled coil (HRC) steel prices experienced a rise of Rs 1,000 per tonne in August compared with July, primarily due to stimulus measures implemented by China.

As per reports, Chinese-listed property developers have been given some relief by the government, allowing the largest cities in Asia's biggest economy to cut down payments for homebuyers and encourage lenders to lower rates on existing mortgages. On Thursday, China allowed the resumption of operations at five iron ore mines in Tangshan. These five are among the miners that were obliged to suspend production following a flood accident in a local mine in September last year.

"We believe that the domestic steel industry is well placed in terms of volume growth led by domestic infra and construction demand," said Narendra Solanki, head of fundamental research, Anand Rathi Shares and Stockbrokers. "However, being cyclical and linked with global pricing sentiments, a long-term view is needed to invest and avoid short-term volatility."

According to Narendra Solanki of Anand Rathi Shares, Tata Steel should be good to bet on, led by strong domestic market volume growth and product mix improvement.

Hindalco and Nalco are currently trading lower than their five-year average PE ratio. Analysts also expect the government to continue to shield the Indian industry from dumping practices.

"Margins for steel companies are expected to remain healthy in the July-September quarter aided by lower coking coal consumption cost," said Ashutosh Somani, analyst JM Financial.