On a day when the benchmark Sensex closed above the 20,000-mark on account of broad-based buying, metal stocks took a beating as falling commodity prices, along with rising inventory levels, made investors shun the sector.
On Friday, the BSE Metal index was one among only two sectoral indices to end in the red with a loss of 0.22%. The 30-share Sensex, however, gained 144 points to close at 20,083. This is the first time in nearly four months that the benchmark has closed above the 20,000-mark.
Incidentally, in the last quarter of the previous financial year (FY13), the metal index lost over 21% even as the benchmark Sensex was down by only 3.47%. In the last one month, the Sensex gained over 9%, outpacing the metal barometer that rose by less than 4%.
According to analysts tracking the sector, a fall in the global commodity prices along with a slowdown in the Chinese economy due to inflationary pressures is impacting investor sentiment towards the sector. Most metal majors have reported an increase in the inventory levels in the recent past.
According to Bloomberg, Sterlite (57.32%), Jindal Steel (26.39%), Sesa Goa (9.80%) and Hindustan Zinc (39.24%) showed year-on-year growth in their inventories while announcing their latest financial results. The sales have grown at a slower pace with Sesa Goa reporting a 69% drop in consolidated net sales.
The impact is clearly visible in the stock prices as well. On Friday, Coal India lost nearly 3% while Jindal Steel and JSW Steel were both down by over 1%. Bhushan Steel (-0.27%) and Sterlite Industries (-0.10%) also ended the day in the red.
?Globally we are seeing a correction in this sector. The iron ore prices have gone down. It would impact steel price. So, there is weakness in prices. The outlook on ferrous side remains weak. In the long-term copper can rebound. But, we don’t expect metals to bounce back,? says Gautam Roy, vice-president, equity strategy & product, Motilal Oswal Securities.
A recent note by Nomura pegged the growth in steel demand in India at 3.3% for FY13, while in the last quarter the growth was a mere 1.5%. Another factor impacting the sector is the strengthening of the dollar. ?The current levels of dollar will keep the metals under pressure. With global growth moving at a slow pace, there has been a drop in demand,? said Piyush Garg, CIO, ICICI securities.
