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After underperforming, stocks from the metal space witnessed a revival of fortune on Thursday, thanks to firm metal prices on the LME and a positive GDP data from China. Except tin, other prime metals such as copper, aluminium, nickel, lead and zinc traded firm on the LME.
China's GDP was also above market expectations. China's National Bureau of Statistics said the economy grew 9.5 per cent in the April-June quarter, slower than the 9.7 per cent recorded in the previous three months but better than analyst's expectations.
The BSE Metal Index gained 0.69 per cent against the Sensex's gain of 0.12 per cent.
Led by Sesa Goa, which gained 3.64 per cent to Rs 296.4 over the previous day's close of Rs 286, Hindustan Zinc, Jindal Steel, JSW Steel, Sterlite Industries and Bhushan Steel, all gained in the range of 0.4 to 1.75 per cent. However, SAIL and NMDC closed 0.45 per cent and 1.30 per cent lower, respectively, over the previous day' close.
Besides, the financial performance of Alcoa Inc, the largest US aluminium producer, also boosted the sentiment for metal stocks. The company said second-quarter profit more than doubled after higher prices for the lightweight metal outweighed increasing raw-material costs.
However, analysts are sceptical about the rally in the sector.
According to Elara Captial, “We expect margins for the ferrous pack to be under pressure, thanks to rising coking coal costs. Similarly, although the non-ferrous entities have been more integrated, lack of volume growth and almost flattish sequential realisations are likely to post subdued growth in profitability.”
Metal stocks, particularly with the mining exposure, have been under pressure recently after the Government mooted the new Mining and Minerals (Development and Regulation) draft bill. According to the proposal, royalty will to be doubled and incremental amount will go the local population.
“We believe, due to lack of realisation growth as well as subdued operating margin expectations, visible volume growth will be the key driver in the coming years, with almost all companies facing either delays or environmental blockheads related to integration or expansion,” the Elara report added.
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