Metal stocks in demand

The Nifty Metal index advanced 0.60% to 2,435.20, supported by strong Chinese manufacturing data and weak US dollar.

The Nifty Metal index also witnessed value buying after falling 4.36% in the past two sessions.

Hindalco Industries (up 3.10%), MOIL (up 3.15%), JSW Steel (up 2.43%), Tata Steel (up 1.02%), SAIL (up 0.78%), Jindal Steel & Power (up 0.68%), Hindustan Zinc (up 0.13%) and NALCO (up 0.28%) advanced.

Meanwhile, the S&P BSE Sensex rose 50.11 points or 0.13% to 38,678.40.

China manufacturing sector continued to expand in August 2020, with a manufacturing Purchasing Managers' Index (PMI) score of 53.1 from 52.8 in July 2020, the latest survey from Caixin revealed on Tuesday. Production and new orders both expanded at sharper rates than in July, while firms reported the first increase in export sales in 2020 to date. The Caixin China purchasing managers index is weighted toward small, private manufacturers.

China's official manufacturing PMI, focused more on large, state-owned companies, edged down to 51.0 in August from 51.1 in July, according to data released by the National Bureau of Statistics on Monday. The official survey of manufacturers has a much larger sample than the private survey.

China is the world's largest producer and consumer of industrial metals. A recovery in the Chinese demand and production remains the key factor as far as metal stocks are concerned.

Meanwhile, the US dollar is reeling under pressure as investors continued to assess US Federal Reserve's move to alter its inflation strategy. Fed decided to target 2% inflation on an average level which means that the central bank could let inflation run higher for some time and may not pre-emptively raise interest rate to control inflation. The shift in stance is to indicate that interest rates may remain low for a long time.

Fed's stance is negative for the US dollar as it could lead to capital outflow from the United States due to lower interest rate. However, the US central bank did not give much detail on how it will achieve the 2 percent target.

The US dollar being the benchmark pricing mechanism for most commodities, when the value of the dollar weakens against other major currencies, the prices of commodities generally move higher as it costs more dollars to buy commodities when the value of the dollar drops.

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