Buy/ Hold/ Sell: Metal Stocks have Rallied 20-60% in 2021
The Nifty metal index has rallied 37 percent in the year 2021, supported by global reflation, a weak dollar index and an uptick in demand across the world.
Nine out of 10 stocks in the metal index have delivered 20-60 percent returns. These include NMDC, Hindustan Zinc, Vedanta, Jindal Steel & Power and JSW Steel Ltd, data collated from Ace Equity shows. Coal India was the only stock that fell over 4 percent during the period.
According to Sunilkumar Katke, Head, Commodity & Currency, Axis Securities, Base metals reached a multi-year high in FY21 on a weak dollar and strong manufacturing and economic data from China and the US after vaccine news surfaced
“The demand is outpacing supply this year as overall output is also low compared to previous years due to mining lockdowns. The US spending on infrastructure and electric vehicle (EV) revolution to support overall base metal prices in FY22, especially the copper and nickel prices,” he said.
“For the non-ferrous pack as well, we are raising LME aluminium (Al) estimates by 9 percent each for FY22 and FY23. Our FY22E/FY23E EBITDA is, hence, 20 percent/8 percent higher for ferrous companies and 10 percent for non-ferrous companies,” Edelweiss Securities said.
Deep production cuts in China and the possibility of a reduction in steel exports are propping up sentiment and prices alike. Apart from the China factor, Edelweiss said favourable macros—global reflation, a weak dollar index and demand uptick—indicated that good times will persist a little longer for the metal space.
Buy/ Hold/ Sell?
Momentum is likely to continue in the metal space but after a steep rally, there could be some consolidation, experts say.
“We have been bullish on the metal sector for the last two weeks. The sector had a short-term correction in the month of March that unfolded in a channelised manner,” Gaurav Ratnaparkhi, Senior Technical Analyst, Sharekhan by BNP Paribas.
“Towards the end of March, the channel broke out on the upside with which we turned positive. Since then the metal index has witnessed a swift rally. As a result, the short-term momentum indicators have been pushed into the overbought zone. So there is scope for a short-term consolidation,” he said.
“Traders and investors need to have exposure in the metal stocks, however, they need to wait for a fresh setup to take a fresh entry,” he further added.
Rahul Sharma, Head, Technical and Derivatives Research, JM Financial Services said that the sector has been the dark horse and is also one of the leading sectors responsible for supporting the Nifty50 to a great extent.
“However, the risk-to-reward ratio is not favourable for entering fresh longs here. The bias for metal sectors is still positive and one can look to enter longs on dips or a minor correction for another three-five percent upside,” he said.