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Research The Signal Nifty Metal Hits Record Highs, Leading the Charts Over the Last Quarter

Nifty Metal Hits Record Highs, Leading the Charts Over the Last Quarter

Written by - Fisdom Research

June 1, 2024 6 minutes

The Nifty Metal Index has surged to unprecedented heights, achieving record levels, and consistently outperforming the broader market. Over the past year, the index has demonstrated an impressive growth of 65%, significantly outpacing the Nifty 50’s 21.9% rise. Even on a quarterly basis, the index tops the charts by delivering 22.7%. Remarkably, fourteen out of the fifteen stocks in the index have delivered positive returns, primarily attributed to recovery in demand and rise in base metal prices.

Source: ACE MF, Fisdom Research

The primary contributors to the index’s returns have been Hindustan Zinc, Vedanta, and Hindalco Industries. Hindustan Copper has delivered the highest returns, with an impressive 214% over the past year and 32% in the last three months. Vedanta’s stock surged mainly due to positive developments regarding its debt allocation following the demerger plan, as well as rising base metal prices for zinc, lead, and silver. Hindustan Copper’s extraordinary performance is driven by increasing demand and higher prices for copper, a crucial component in the energy transition sector.

Company NameWeightageAbs Returns3MAbs Returns1YReturn Attribution3MReturn Attribution1Y
Hindustan Zinc Ltd.2.47%1241243.1%3.1%
Vedanta Ltd.8.70%68625.9%5.4%
Hindalco Industries Ltd.15.13%37705.6%10.5%
Jindal Steel & Power Ltd.5.43%32991.8%5.4%
Hindustan Copper Ltd.1.79%322140.6%3.8%
Steel Authority of India Ltd.3.52%31921.1%3.2%
Jindal Stainless Ltd.3.62%241680.9%6.1%
National Aluminium Company Ltd.2.52%231290.6%3.2%
Tata Steel Ltd.20.80%19583.9%12.0%
NMDC Ltd.4.60%151440.7%6.6%
Ratnamani Metals & Tubes Ltd.1.04%11470.1%0.5%
JSW Steel Ltd.11.69%10271.2%3.1%
Welspun Corp Ltd.1.05%81180.1%1.2%
Adani Enterprises Ltd.13.57%4370.5%5.0%
APL Apollo Tubes Ltd.4.00%-332-0.1%1.3%

Source: ACE MF, Fisdom Research

Key Drivers behind the rally in metal stocks are as follows:

Growth DriverKey Points
U.S. Tariff Hike on Chinese GoodsImposed by President Joe Biden on May 14, affecting $18 billion in annual imports from China. Aimed to create a fairer playing field for Indian exporters.
Government Intervention & Anti-Dumping DutiesIndian government imposed a five-year anti-dumping duty on Chinese steel in September 2023. Curbed the influx of sub-standard Chinese imports and supported domestic producers.
Positive Corporate DevelopmentsVedanta and Hindustan Zinc surged due to clarifications on debt distribution post-demerger and rising prices of zinc, lead, and silver. Vedanta reduced its debt by 10% QoQ to Rs 56,338 crore in Q4FY24.
Rising Demand for CopperHindustan Copper gained 210% over the past year due to increased demand for copper in the energy transition sector. Speculation of a shortage led to a 25% price surge since the start of the year.
Manufacturing Activity ExpansionIndia’s PMI remained above 50 throughout the past year, indicating robust manufacturing growth. The US and China posted PMI expansions in March 2024, boosting demand for metals.
Higher Steel PricesSignificant uptick in steel prices due to declining inventories and recovery in end-consumer demand. SAIL, Tata Steel, and JSW Steel saw substantial gains since November 2023

Way Forward

In our technical analysis for the near term, we maintain a moderately positive outlook on the sector. However, from a fundamental perspective, we anticipate that near-term volatilities may persist. This could be attributed to factors such as the normalization of raw material costs and the potential impact of the Red Sea crisis on exports. Nonetheless, we emphasize that the long-term structural narrative remains intact.

We foresee the metal rally continuing. This is underpinned by several factors, including the anticipated increase in industrial consumption in China, resilient domestic demand, and expected hikes in domestic steel prices. Moreover, there are positive indications of a recovery in China on the global front. Measures undertaken by the Chinese government to bolster the economy are promising for the sector’s long-term prospects.

From a financial standpoint, the sector is poised favorably. Higher return on equity (ROE), coupled with low debts and robust earnings growth, suggests that the sector may command higher multiples compared to historical trends.

Our Top Picks: Tata Steel Ltd, Hindalco Industries Ltd, JSW Steel

Technical Outlook: Nifty Metal IndexA graph of stock market  Description automatically generated with medium confidence

NIFTY METAL INDEX on the weekly chart is trading in a higher high higher low formation and the Index has also given a rising channel pattern breakout on the weekly chart.

The momentum oscillator RSI (14) is reading in a bullish range shift zone between 60 – 75 levels. Overall, the index is trading above all the important averages which adds strength to the current up move.

Market this week

27th May 2024 (Open)31st May 2024 (Close)change (%)
Nifty 50                          ₹ 23,039₹ 22,531-2.2%
Sensex₹ 75,655₹ 73,961-2.2%
  • In a volatile week ending May 31, the Indian market erased previous gains and fell nearly 2 percent due to upcoming exit poll results, GDP data, the May F&O expiry, and continued FII selling. 
  • However, mixed corporate earnings, positive monsoon forecasts, and DII buying helped to mitigate the losses.
  • Except for the Nifty PSU Bank, all other sectoral indices ended in the red. The Information Technology index dropped 4.2 percent, the Nifty Energy index declined by 3.3 percent, the Nifty Oil & Gas index slipped 3 percent, and the Nifty FMCG index fell 2.4 percent.
  • During the week, Foreign institutional investors (FIIs) sold equities worth of Rs 7,754.40 crore, while Domestic Institutional Investors (DII) bought equities worth Rs 14,935.15 crore.

Weekly Leaderboard

Nifty50 Top GainersDay change (%)Nifty50 Top LosersDay change (%)
Divi’s Lab4.5Tech Mahindra-7.1
Hindalco Indus.2.4ONGC-6.7
Bajaj Auto1.5Wipro-5.5
Adani Ports & Speci1.5Grasim Inds.-5.1
IndusInd Bank1.4Titan Company-5.0

Stocks in Spotlight

  • Sun Pharmaceutical Industries: The pharmaceutical company has agreed to a preferential offer to acquire a 14.28% stake in the Indian Foundation for Quality Management for ₹12.5 crore. Additionally, the US FDA announced that a US-based unit of Sun Pharma is recalling 35,069 bottles of medication used to treat high intraocular pressure due to glaucoma or other eye diseases.
  • Jio Financial Services: The Reliance group company has launched the JioFinance app in beta mode. The app integrates digital banking features such as UPI transactions, bill payments, and insurance advisory services, enabling users to manage their accounts and savings on a single platform.
  • Tata Steel: The steelmaker reported a 64% year-on-year decline in Q4 profit to ₹611.48 crore, attributed to lower steel realizations and poor performance in its international operations. Consolidated revenue dropped 6.7% to ₹58,687.3 crore. The board approved the issuance of additional debt securities up to ₹3,000 crore and an infusion of up to $2.11 billion into a wholly-owned subsidiary to repay debt and support restructuring costs at Tata Steel UK.

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