After a sustained rally, shares of metals companies finally gave back some of their gains on Wednesday, with the S&P BSE Metal Index losing 506 points to 21,382 on concerns over high valuation and rising production costs.
The BSE metals index fell from 20,306 at the start of this month to a high of 22,419 on Monday, but began its slide from Tuesday.
Almost all constituents of the BSE Metal index, except for Jindal Steel, closed in the red. Hindalco, Vedanta, Nalco and APL Apollo Tubes were down 4% each while SAIL, Hindustan Zinc and Coal India were down 3% each on Wednesday.
Despite the sharp drop in the metals index, the long-term outlook for metals companies remains strong, with China cutting production and increasing demand worldwide.
Metals companies have been reeling from rising input and logistics costs, although demand has remained robust. However, metallurgical companies, especially steel and aluminum producers, have managed to partially pass on the additional cost to end consumers.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said the drop in the metals index is due to profit taking and could be a temporary phenomenon as all indicators point to strong demand and prices students.
Sharp rise in metal prices
Sustained rise in demand for many metals, including steel, zinc and aluminum, along with supply disruptions, has led to a sharp rise in metal prices, which has proven to be a boon for domestic metal fabricators, he added.
Rajnath Yadav, research analyst at Choice Broking, said domestic metal companies plan to raise prices to counter rising production costs.
While demand in India may remain stable on a sequential basis over the next few quarters, margins will be maintained due to the expected price increase, he added.
Mohit Nigam, Head of Portfolio Services, Hem Securities, pointed out that the Nifty Metals Index has risen 154% over the past year compared to 55% by Nifty 50.
“Individually, he said, JSW Steel was up 115%, SAIL (249%), Tata Steel (245%), Nalco (253%) and Hindalco (184%),” he added. .
Starting next May, he said China will cancel export rebates for several steel products and remove import duties on pig iron, crude steel and recycled steel raw materials.
The Chinese move will give India, Japan and the United States plenty of opportunities to export more steel around the world to meet growing demand, he said.