The Hindu Business Line : Metal stocks recover lost ground

Kolkata, March 14 Metal stocks along with other sector stocks recovered ground substantially from Thursday’s lows. The BSE Metal Index bounced back 3.28 per cent against the decline of 8.38 per cent.

According to analysts, Thursday’s dip and Friday’s recovery are to be seen in the light of apparently irrational behaviour of the stock market in response to fluctuating liquidity and sentiment.

Outperform

“The complex process of unwinding of structured derivatives products and de-leveraging trend in the global financial markets have been causing hiccups in the commodities stocks. These are, however, largely unrelated to the specific fundamentals, but to the short-term technical and liquidity related exigencies,” said Mr Amitabh Chakraborty of Religare.

According to Mr Ajay Jaiwal of Angel Broking, fundamentally, the metal stocks outperformed the Nifty since the January 22 lows. These stocks attracted profit booking in the current uncertain times. Some of the sector funds sold metal stocks on Wednesday and Thursday to increase liquidity and encash the short-term paper profits.

The BSE Metal Index had gained 41 per cent compared to Nifty’s 25 per cent from their respective January 22 lows.

Hence, it was strategically convenient to cast out from high-beta metals stocks. Interestingly, in the Nifty the metal stocks have a weight of just 8.57 per cent.

derivatives losses

According to Mr Gul Teckchandani, an independent strategist, a section of the market is behaving in terms of long-term fundamentals of the stocks and not in tune with short-term volatility. These investors are not bothered to factor in the elements like train of currency derivatives losses trails simply because they cannot be quantified as of now.

According to Mr Arun Kejriwal, neither Friday’s recovery nor Thursday’s sharp drop is a function of rational investments, but possibly results of tactical moves.

The three metals – steel, aluminium and zinc – have continued to rule strong in the global market in the recent weeks. According to analysts, despite this, the stocks related to these metals have been affected by the volatility. On Friday, out of the 15 stocks in the BSE Metal Index, 12 advanced while 3 declined.

Hindalco gained 4.52 per cent while JSW Steel moved up 4.23 per cent. Sail was up 4.04 per cent.

But Sterlite Industries was the biggest gainer with 6.14 per cent recovery. Sesa Goa, which declined by 9.71 per cent on Thursday, despite riding on strong global price trend in iron ore, recovered by 2.23 per cent on Friday.

Interestingly, there were talks of possible government’s restrictions on export of ores in view of shortage of ores and price escalation in the domestic market.

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