Amid commodity boom, equity funds increase allocation for metals in July

In the last few months metal stocks have been in demand due to the positive earnings announcements and improved business outlook for the sector. Equity funds have started to ride on the popularity of the metal sector and are investing aggressively into the metal stocks.

The data from Motilal Oswal Fund folio shows that metals’ weight achieved a 33-month high after moderating in the last two months to 3.4 per cent in July. In the current calendar year, average weight in the metal sector was around 2.8 per cent. Top ten metal stocks bought by the equity funds in July included Tata Steel and Hindalco Industries.

Metal stock prices have seen a sharp surge due to the rise in metal prices in global markets and surge in demand in India. “We have seen metal companies reducing their debt in the last one year and the government's focus on infrastructure. We still believe there is upside in the sector,” said a fund manager of a leading fund house.

In the last one year, S&P BSE Metal Index has seen a rise of around 140 per cent. Stocks such as Tata Steel and JSW Steel have given returns of 260 per cent and 185 per cent respectively in the last one year.

Edelweiss Securities, in its sector report for Metals and Mining, stated that it sees two structural drivers that would shape the sector in the medium term, which are the ongoing decarbonisation drive in China and global trade shift in light of protectionism.

“In our view, steel in particular has become more localised with various protectionist measures enacted by several countries/regions. Besides, the high price of steel has prompted Russia and China to adopt measures deterring exports. We believe this has opened up the market for Indian players who have been increasing their export allocation at much higher margins,” stated the report.  

The data from Securities and Exchange Board of India (Sebi) shows that as of July, equity funds have deployed Rs 38,516.03 crore in ferrous metal and Rs 17,550.13 crore in non-ferrous metal.

Apart from the metal sector, fund houses are also bullish on banking, financial services and insurance (BFSI) space in July. ICICI Bank, SBI and Bajaj Finance were among top ten stocks bought by the equity funds in July.