Metal stocks shine in weak market; are there good long-term opportunities for investors?

The metal space was an outlier in an overall weak market on Thursday, February 22, boosted by strong gains in Hindalco, Tata Steel and NMDC shares. The Nifty Metal index gained as much as 1.0 per cent in intraday trade, rising for a second straight session to turn neutral for the week after finishing the previous week 1.5 per cent lower amid softening iron ore prices.

At 1:30 pm, while Hindustan Copper shares were up nearly five per cent, stocks such as NMDC, Nalco, JSL, Hindalco and Tata Steel traded about 1-2 per cent higher, shrugging off persistent weakness in Chinese iron ore prices.

Chinese iron ore prices continued to decline to as low as $122 per tonne on Wednesday, already down about two per cent on the week, according to Prabhudas  Lilladher.

Domestic steel demand improved in January as imports subsided, but pricing still remains muted, analysts at the brokerage wrote in a report dated February 21.

Primary steel players are expected to take calibrated price hikes in the near term in order to counter the rising cost curve, say analysts.

“Steel companies are eyeing export markets as the benchmark Indian hot rolled coil (HRC) continues to trade at discount on import parity basis. A cut in benchmark lending rate by China is expected to boost the housing sector,” Prabhudas Lilladher analysts added.

Is there a long-term opportunity for investors in metal stocks?

The metal sector can offer the best opportunity this year, Gautam Shah, Founder and Chief Strategist at Goldilocks Premium Research, said in an exclusive interaction with Zee Business.

One can expect the metal index to touch levels of 9,500 during this period, implying a 20 per cent upside, according to Shah.

Shah, who expects the overall market to touch new highs, suggests investors adopt a ‘buy on dip’ at “every opportunity” at the current juncture on Dalal Street.

Earlier, Motilal Oswal Financial Services maintained its ‘underweight’ rating on the metal sector.

The metal index has risen about 40 per cent in the past one year, sharply outperforming a 24 per cent rally in the headline Nifty50 index.

Jigar S. Patel, Sr. Manager - Equity Research is of the view that the current consolidation phase has coincided with the 21-day Exponential Moving Average (DEMA), which adds an interesting technical dimension to the current scenario. The proximity of this consolidation to the 21 DEMA suggests a potentially favorable setup for traders.

A noteworthy observation is that a conclusive breakthrough above the upper bound of this range, specifically beyond the 8100 mark, could signify a bullish momentum in Nifty Metals, potentially propelling it towards the 8300 level within the coming days. Conversely, if the index fails to sustain above the lower bound of the range, closing below 7900 points, it might indicate a bearish sentiment prevailing, possibly leading to a decline towards the 7700 level. Given this technical setup, traders are advised to exercise caution and await a clear breakout/breakdown in either direction before committing to significant positions, noted Patel.