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Fiscal cliff relief: Metal stocks up

Additional funds in the system might flow into commodities

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Shares of rose after the arrived at an interim solution on the – a combination of across-the-board tax increases and spending cuts that were supposed to have kicked in from Tuesday.

The metal Index on the Bombay Stock Exchange rose by 2.13 per cent, following a rise in confidence about metal companies’ fortunes. The Sensex was up marginally by 0.79 per cent to close the day at 19,580.80. The also closed with gains of 0.77 per cent to 5,950.85.

Among metal companies, Ltd (JSPL) was up 3.26 per cent, while others including Hindalco Industries, and rose by over two per cent from their respective closing rates the previous day.

  Dec 31,’12
(in Rs)
Jan 1,’13
(in Rs)
Net Chg
(in Rs)
% Chg
Sensex* 19,426.70 19,580.80 154.10 0.79
Nifty* 5,905.10 5,950.85 45.75 0.77
METAL* 11,070.60 11,306.60 236.00 2.13
Jindal Steel & Power  447.50 462.10 14.60 3.26
Hindalco Industries 130.60 134.15 3.55 2.72
Tata Steel  428.30 438.30 10.00 2.33
JSW Steel  812.00 830.95 18.95 2.33
Steel Authority of India  90.60 92.60 2.00 2.21
NMDC  165.10 168.50 3.40 2.06
Sterlite Industries India  116.65 118.85 2.20 1.89
Sesa Goa  195.25 198.55 3.30 1.69
Coal India  355.05 360.00 4.95 1.39
Hindustan Zinc  136.05 136.95 0.90 0.66
Bhushan Steel  480.60 481.90 1.30 0.27
Source:BSE, compiled by BS Research Bureau     * in points

According to Daljeet Kohli, head of research, IndiaNivesh Securities, partial resolution of the fiscal cliff is the only trigger which can be attributed to today’s spurt in the share prices of metal companies. The outcome of the US fiscal cliff through more release of funds is set to come either in emerging markets or in commodities. Either way, these would help base metals, he added.

The release of more funds into the system is expected to push housing demand, thereby increasing the demand for both ferrous and non-ferrous metals like aluminium and copper. Although, analysts are wary about the short-term impact of the fiscal cliff, which may increase the burden on US tax payers, the long-term fundamentals support a rebound in metal demand.

“The metal demand is set to see a rebound with the overhang about fiscal cliff being negotiated in the Senate. Had the agreement not been achieved, the US economy would have gone back into recession. Also, China’s Purchasing Managers’ Index (PMI) has shown a sign of revival, pushing thereby hopes for a rebound in the country’s metal demand,” said Rikesh Parikh, vice-president – equities, Motilal Oswal Securities.

Importantly, signs of revival in the Chinese economy are visible. Hence, any economic revival package initiated by China will augur well for metal stocks. Although, global demand will not revive very strongly, it will not deteriorate further. Hence, global commodity prices are likely to remain firm, going forward.

Indian producers are likely to be benefit from low cost of production as well as increased capacities. Changed dynamics of mining in India, owing to environmental concerns, will continue to distort the demand-supply equation.

The US Senators early Tuesday voted 89-8 to raise some taxes on the wealthy while making permanent low tax rates on the middle class that remained untouched for a decade. But the measure did little to rein in huge annual budget deficits that have helped push the US debt to $16.4 trillion. The agreement came for Congress to meet its own deadline of New Year's eve for passing laws to halt $600 billion in tax hikes and spending cuts, which strictly speaking came into force on Tuesday.

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