Nifty Metal tanks 4% as West Asia tensions spike: Here's what analysts say

Nifty Metal index movement today

Shares of both ferrous and non-ferrous metal companies came under heavy selling pressure on Wednesday, March 2, as escalating geopolitical tensions in West Asia weighed on investor sentiment.

 

The Nifty Metal index dropped 4 per cent to hit an intraday low of 11,773.85. By 10:40 AM, the index was trading at 11,777.5, down 4 per cent from its previous close of 12,269.8, making it the worst-performing sectoral index of the day.

 

In comparison, the benchmark NSE Nifty50 was trading at 24,385.85, down 479.85 points, or 1.93 per cent.

 

Among individual stocks, Tata Steel stock tanked 6.5 per cent to ₹197.2 on the NSE in intra-day trade. Steel Authority of India (SAIL) plunged 6 per cent to ₹155.15, followed by NMDC (5 per cent at ₹77.25), Hindustan Copper (4.5 per cent at ₹547.20), Jindal Steel (4.5 per cent at ₹1,177) and Jindal Stainless (4.2 per cent at ₹750).

 

 

Among others, Hindustan Zinc, JSW Steel, Lloyds Metals, APL Apollo, Vedanta, Adani Enterprises, Welspun Corp, Hindalco Industries, and National Aluminium (NALCO) also fell up to 4 per cent. 

Why are metal shares under pressure on Wednesday?

Metal shares declined on Wednesday, following weakness in global markets and a broad-based risk-off sentiment triggered by escalating geopolitical tensions in West Asia. According to analysts, a strengthening US dollar, a correction in global metal prices, and concerns over potential demand disruption amid prolonged conflict weighed heavily on investor sentiment.

 

Sunny Agrawal, head of fundamental research at SBI Securities, said the primary trigger was the sharp appreciation in the dollar index over the past two to three sessions following the escalation in the US-Iran tensions. 

 

As of Wednesday, the US dollar index has risen from around 97 to levels close to 99.5-100, leading to a correction in the entire metal pack as well as in emerging markets. 

 

Agrawal noted that money has been moving out of riskier assets, including commodities and emerging markets, and flowing toward the dollar, driving the sell-off.

 

Additionally, gold, silver and other metal prices have corrected alongside the strengthening dollar. "While concerns about a prolonged war potentially impacting metal demand have also contributed to the decline, the main reason remains the surge in the dollar index," he added.

 

G Chokkalingam, founder of Equinomics Research, highlighted that industrial metals are particularly sensitive to economic growth concerns. 

 

"During war-like situations, fears of a slowdown in economic activity tend to hurt demand for industrial metals, unlike oil, which sees significant usage during wartime," Chokkalingam said. 

 

He also noted that metal stocks had already rallied to record highs before this correction, and given the inherently cyclical nature of industrial metals, which typically see boom-and-bust cycles every few years, a pullback was due even without geopolitical tensions.