Shares of steel companies rallied in the range of 2-10% on Thursday amid reports that the government may consider a bailout package for indebted metal producers. The BSE Metal Index closed more than 4% higher at 7281.65 points. Shares of Jindal Steel rallied more than 10%, while Tata Steel stock climbed 7.17% during the session.
The rally also extended to aluminium shares as the government proposed to increase customs duty on aluminium to 7.5% from 5%, while export duty on low grade iron ore lumps and fines has been scrapped. National Aluminium Company (NALCO) climbed 9.1%, while Hindalco gained a little more than 6%.
Thursday’s rally comes as a relief for the metal companies as the shares have seen deep correction in the past one year. The sectoral index for metal shares in the BSE has lost close to 30% in the last one year.
US-based investment banking firm Jefferies said in a note to investors that the recent domestic steel demand appears positive but weak global steel fundamentals, falling global prices and imports will continue to weigh on domestic steel prices. “However balance sheet stress could intensify. More protectionist policies are possible, which may offer some relief, but we have doubts around the effectiveness of these measures,” the report noted.
A Bloomberg report said that shares of metal companies may be starting to get their sheen back now due to Budget proposals to boost infrastructure spending by 15% and take electricity to every household by 2018 have spurred a rally in local producers on optimism the outlay will drive domestic consumption.