Metal stocks melt on China PMI data. Should you worry?

he S&P BSE Metal index slipped over 1% in today's trade with stocks like Tata Steel, NMDC, SAIL and Hindalco sliding in the range of 1.1 - 2.1%

Metal stocks have been seen a sharp fall today on the back of weak economic data from China. The S&P BSE Metal index slipped over 1% in today’s trade with stocks like Tata Steel, NMDC, SAIL and Hindalco sliding in the range of 1.1 – 2.1%.

The flash Markit/HSBC Purchasing Managers' Index (PMI) fell to a seven-month low of 48.3 in February from January's final reading of 49.5. A reading below 50 indicates a contraction while one above shows expansion

Given the fall, should one go ahead and buy these counters or is the weakness here to stay? Here is what the experts suggest.

“Prospects for companies that have an export base such as Hindalco, JSW Steel and Tata Steel look good. My top picks in the segment include, Tata Steel, Hindalco and MOIL,” said A K Prabhakar, an independent market analyst adding the PSU stocks such as NMDC, SAIL can also be good bets.

Abhisar Jain of Centrum Broking points out that lower demand outlook in China leads to an unfavourable pricing scenario in the metal space. Since China accounts for 40-45% of demand in the steel and metals space, any hiccup on the demand side will adversely affect global prices.

“The recovery in US and Europe is unlikely to completely balance the dip in demand since 3-4% demand fall from China would need to be compensated by much bigger demand increase from developed countries. We favour mining stocks over producers on account of better pricing scenario in domestic market for large miners due to favourable demand-supply dynamics and strong balance sheets along with 5%+ dividend yields,” he adds.