The Hindu Business Line : Metal stocks regain lustre

Barely a few days ago, stock watchers were predicting doom for investors holding metal stocks. Fund managers removed metal stocks from their equity portfolios and dealers declared `no deal'.

Proving market watchers terribly wrong, the BSE Metal index surged 120 points or 1.38 per cent to close at 9,015.39 points on Friday. The last time the index topped the 9,000-mark was on November 8 at 9,160.64 points. In four trading sessions since then, the index tripped 182 points to close at 8,978.43 points on November 14. The next two trading session saw the index closing low, and on November 17, it closed 145.35 points down at 8,789.55 points. On November 20, BSE Metal dipped further to 8,584.93 points.

The reasons for the fall varied from Chinese dumping to supply-demand mismatch to the US slowdown and falling crude prices.

Yet, the index appreciated by about 2.63 per cent over the past four trading sessions.

"There is a feeling in the market that PE levels of cream stocks in banking, capital goods and IT sectors are a bit more stretched that normal. Many are scared to put their money into bluechip stocks fearing corrections or falls. This makes "under-priced" metal stocks (with PE levels below 10) a bit risk-free to park their money in,'' said Mr Alex Mathew, Research Analyst, Geojit Financial Services.

The second reason for the spurt in metal stocks could be the weakening of the dollar against euro. "A weak dollar always impacts commodity stocks positively,'' Mr Mathew added.

The `heavyweights' of the index closed high on the BSE on Friday. Tata Steel traded at Rs 483.05, up Rs 11.60 or 2.46 per cent on Friday. Hindalco closed at Rs 177.85, up Rs 2.85 or 1.63 per cent whereas Sterlite ended the day at Rs 542.05, up Rs 2.90 or 0.54 per cent today. Hindustan Zinc traded high at Rs 918.40, up Rs 2.90 or 0.32 per cent and Steel Authority rose 1.87 per cent to end at Rs 90.10.

"The outlook for the metals has not changed much since last week. Stock prices of Hindustan Zinc have appreciated due to continued rise in zinc price and on reports of the company diversifying into power sector. Sterlite has gained due to the announcement that it intends to buyout government stake in Hindustan zinc. The second reason being rise in zinc prices; Sterlite holds 69.5 per cent stake in Hindustan Zinc. Movement in the zinc prices will also impact Sterlite's bottomline," said Mr Vishal Chandak, Research Analyst - Metals, Emkay Shares and Stocks.

Reports of a rise in export tax from 5 per cent to 15 per cent in China (to curb dumping of metals) are said to be a factor behind the surge in metal stocks.

"Investors with good risk appetites can park their money in metal stocks. Being very sensitive to international policies and markets, these stocks are definitely not `good long-term holds'," said an analyst.