Metal stocks surge on China demand, RBI policy move

Shares could surge further by 10-15 per cent, said analysts

Improving Chinese demand, partial lifting of the Odisha mining ban and the central bank’s move to ease liquidity boded well for metal sector stocks, which climbed to a one-year high on Tuesday.

Chinese manufacturing data for the month of May touched a four-month high, leading to hopes that demand from the world’s largest consumer of metals will revive going forward. Further, the Reserve Bank of India’s move to cut the statutory liquidity ratio or SLR by 50 basis points to 22.5 per cent boosted market sentiment resulting in heavy buying in these stocks which have not been major participants in the recent market rally.

“We have been expecting a rally in this sector for some time now. Stocks will continue to do well because people expect faster GDP growth, which could push up demand for metals,” said Dipen Shah, senior vice-president (research), Kotak Securities.

Metal majors like Tata Steel, Sesa Sterlite, Hindustan Zinc and Coal India climbed more than five per cent each, outperforming even the sectoral index. The BSE Metal index was up five per cent.

Sentiment was further boosted in the day after Odisha allowed mining operations to resume in eight of the 26 mines where mining activity had been banned. Of the eight, four belong to Tata Steel and three mines are owned by the SAIL, whose stock was up 4.3 per cent on Tuesday. Analysts said stocks had also moved up on expectations of easy liquidity form the euro zone.

Metal stocks, which have rallied over 30 per cent so far this year, could see further upsides of about 10-15 per cent said analysts.  But not all analysts are upbeat on the sector.  Some sections believe that there are better opportunities in the market other than metals. Disappointing March quarter numbers suggest that the pain in the sector is far from over and policy bottlenecks will take a long time to be resolved.

"It looks like the rally we saw today was just a one-off rally. It (the rally) is not justified as the numbers for the March 2014 quarter have not been great," said Kunj B Bansal, executive director and CIO (equity), Centrum Wealth Management.

"These stocks were lagging and had not participated in the recent rally which is why we saw the buying interest today."