Metals extend winning streak on Dalal Street amid commodity surge

Mumbai: Metal stocks have remained outperformers on Dalal Street in recent weeks in the wake of the Russia-Ukraine conflict that has triggered a surge in global commodity prices. With metal prices expected to remain strong, analysts see further upsides for shares of companies, making them strong bets for traders. But for investors, analysts are recommending against fresh purchases as the recent surge in stock prices have made their valuations expensive.

The Nifty Metal index ended flat at 6,500.2 on Friday but it has gained about 10% in the last seven sessions and over 18% in the last one month, outperforming the benchmark Nifty. The Nifty has gained nearly 3% in the last seven sessions. Analysts said the metal index could rise by another 5-10% as sentiment remains sanguine after the recent jump in prices.

The metal index has topped the highs made in early March which signals that the uptrend will continue, they said.

“We see 5-10% more upside from here,” said Rohit Srivastava, founder, Indiacharts.com.

Jindal Steel and Tata Steel are top bets of Axis Securities in the metals space.

“Jindal Steel is best placed currently due to higher price hikes in longs, which is around 70% of its product portfolio and 50% of coking coal requirement is likely to be met through its overseas mines in Mozambique and Australia,” said Axis Securities. “Tata Steel should benefit from higher prices in Europe which would partly offset weakness in Indian steel spreads,” said Axis Securities.

Analysts said Ukraine and Russia account for around 15% of global steel trade and 40% of European imports. The supply disruption from these two countries and the rise in energy costs in Europe has led to a 50% month-on-month rise in European spot steel prices, said analysts. Russia is a key global producer of aluminium and nickel.

“This (rally) is likely to sustain. With the Russia-Ukraine war continuing, these countries won’t be exporting and China has also said that it will produce less steel this year, which will lead to supply side pressures continuing,” said Bhavesh Chauhan, analyst at IDBI Capital Markets & Securities.

The rally in metal prices in the past 12-15 months has helped domestic companies repair their balance sheets by lowering their debt. Analysts said investors are bullish on the sector also because of their improved financials.

“The debt to EBITDA of the metal industry was 6 times two years ago. Now the dynamic has changed after the rise in metal prices, the debt to EBITDA is 1,” said Amit Gupta, vice president and fund manager-PMS at ICICI Securities.