The Hindu Business Line : Metal counters lose shine on LME volatility

Weak financial performance by metal majors such as Tata Steel and Sesa Goa in the September quarter has aggravated the selling, said marketmen. Weakening of metal prices on the LME in the last few days following the strengthening of the dollar is the other reason, said analysts.

Besides, rising crude oil prices and profit booking have forced investors to offload their positions in metal stocks, they added.

The metal index on Wednesday closed down 0.58 per cent with 11 stocks closing in the red. Four of the stocks ended the day on a positive note.

“The main reason for these stocks to fall is that crude oil price is on the rise. Rising crude prices signals a weakening economy. The price of gold and other precious metals have also started to witness a rise. Added to this, the dollar has strengthened against other currencies,” said Mr Alex Mathew, Head of Research at Geojit BNP Paribas Financial Services.

Crude has risen to near $78 a barrel, while gold has zoomed to Rs 15,980 (10 gm).

Tata Steel Ltd reported a 50 per cent drop in second-quarter profit after declining prices negated an increase in demand from automakers and construction companies. Net income fell to Rs 903 crore in the three months ended September 30 from Rs 1,790 crore a year earlier.

Sesa Goa posted a sharp drop in net profit at Rs 139.11 crore during the quarter ended September.

Ispat Industries on Wednesday reported that its loss widened in the September quarter.

“The profits of Indian metal companies have mainly risen on account of the dip in crude prices. Their top line has not improved much. With an increase in crude prices, their profits in the next quarter will be affected,” said Ms Anita Gandhi, Head of Institutional Business at Arihant Capital Markets.

The share price of Hindalco has nosedived 12 per cent in the last one week. Other losers are Ispat (11 per cent), Jindal Saw (13 per cent), NMDC (8 per cent), Sesa Goa (7 per cent), Sterlite (7.5 per cent) and Tata Steel (12.6 per cent).

Marketmen said another reason why these stocks took such a beating was profit-booking. These stocks had run up so much that a correction was inevitable, they said.

Brokers said it would be wise to stay away from metal stocks for now.

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