Tech view: Metal stocks set to rally further despite recent outperformance

Major metal stocks are not witnessing any selling pressure despite trading in the overbought category of RSI

Metal and mining stocks are in no mood to lose their sheen despite an outperformance at the bourses over the paat two months. On Monday, the Nifty Metal index was ruling nearly a per cent higher on the National Stock Exchange (NSE), as against a 0.45 per cent decline in the Nifty50 index, and was the top gainer on the exchange.

Individually, Adani Enterprises, SAIL, National Aluminum Company (Nalco), APL Apollo Tubes, and Welspun Corp surged between 1.5 per cent and 5 per cent on the NSE while Ratnamani Metals and Tubes, MOIL, Tata Steel, Hindalco, and Vedanta gained up to 1.4 per cent.

Over the past two months, all the constituents of the Nifty Metal index have outperformed the benchmark Nifty50 index by soaring between 2 per cent and 81 per cent compared with the headline index's 0.7 per cent gain, ACE Equity data show. JSW Steel, for instance, leaped 81.5 per cent; SAIL (56 per cent); Tata Steel (45 per cent); Adani Enterprises (39 per cent); and Jindal Steel (31 per cent). In comparison, the Nifty Metal index gained 27 per cent during the period.

The rally, analysts say, can be attributed to industrial metal prices reaching multi-year highs globally because of the weak US dollar, decline in inventories, and decent demand from major economies such as China. Recently, China cut export rebates on most of steel products including Hot rolled coil (HRC), Cold rolled sheet, Galvanized plates, bars, rods, stainless steel, Welded and seamless pipes effecrive May 1, 2021.

Export rebate on most of steel products (HRC, Rods & bars etc) was 13 per cent which is now reduced to zero. At the same time, China raised the export duty on high silicon steel (25 per cent from 20 per cent), ferrochrome (20 per cent from 15 per cent) and foundry pig iron (15 per cent from 10 per cent). It also cuts import duty on pig iron, scrap to zero. 

"We infer this development as a long term positive for global steel prices as this indicates that China may not distort world steel prices amid any slowdown. Additionally, it shows China's willingness to cut steel production (serious about environmental issues) and meet domestic demand (not hampering GDP growth) via lower export," noted analysts at Centrum Broking. 

Domestically, as HRC steel prices are at a discount of 13 per cent on export parity basis, there is still room to increase prices further in May, they say. "The current slowdown in domestic demand may not hamper the profitability of primary steel producers as its more profitable to exports in Q1FY22. We will soon revise our number upwards to factor in higher steel prices," it added.

Against this backdrop, here is how metal stocks look on charts: 

NIFTY METAL

Likely target: 5,200

Upside potential: 6.32%
The index continues to claim new all-time highs amid firm bullish sentiment. This is supported by the fact that the index is not seeing any aggressive selling pressure in the overbought category of the Relative Strength Index (RSI). As long as the index defends the support of 4,500 levels, the upside may see a rally towards 5,200 levels in the coming sessions, as per the daily chart. CLICK HERE FOR THE CHART
 
TATA STEEL LTD (TATASTEEL)

Likely target: Rs 1,100 - Rs 1,140

Upside potential: 5.67% - 9.51%
After claiming a new all-time high above Rs 912 recently, the stock witnessed mild profit booking. However, the momentum continues to support upswing with fresh higher highs. The overall trend has a closing basis support of Rs 950 levels. Till this level is held, the stock may rally towards Rs 1,100 and Rs 1,140 levels, as per the daily chart. Add to it, the RSI is not witnessing any major selling pressure even in the overbought category, indicating the strength remains intact. CLICK HERE FOR THE CHART

JSW STEEL Ltd (JSWSTEEL)

Likely target: Rs 810

Upside potential: 12%
In the last one month, the stock has risen over 50 per cent despite the RSI indicator trading in the overbought category. This shows inherent strength which is likely to stay in the upcoming sessions. The increase in volumes during the upward rally further indicates the firm participation of market players. The immediate support comes at Rs 640 with an upward bias towards Rs 810 levels, as per the daily chart. CLICK HERE FOR THE CHART
 
VEDANTA LTD (VEDL)

Likely target: Rs 270

Upside potential: 6%
With the "Higher High, Higher low" formation, the stock is set to climb new peaks in the coming sessions, as per the daily chart. The immediate support comes at Rs 240 levels and as long as it is held on the closing basis, the stock could climb towards Rs 270 levels. The weekly chart suggests the stock has passed the resistance of Rs 146 decisively and is ready to rise further. CLICK HERE FOR THE CHART
 
STEEL AUTHORITY OF INDIA (SAIL)

Likely target: Rs 140

Upside potential: 12%
After crossing the resistance of Rs 116 levels, the stock is gearing up to rally towards the next resistance of Rs 140 mark, as per the monthly chart. This move is supported by the Moving Average Convergence Divergence (MACD), which has crossed the zero line, suggesting the momentum and direction to remain in the uptrend. The immediate support comes at Rs 112 and Rs 105 levels. CLICK HERE FOR THE CHART