The far-reaching impact of China’s commodity demand slowdown is being felt in the Indian markets as well, with nine commodity companies pulling the Nifty down by 271.18 points, or 3.45%, since the beginning of CY15. These companies have seen a double-digit fall in stock price since January and their market value has since eroded by Rs 18.7 lakh crore, Bloomberg data showed.
The Nifty has lost 5.1% in CY15 and the persistent fall in shares of commodity-linked companies has wiped out the forward movement made by rest of the index constituents.
According to Raamdeo Agrawal, joint MD, Motilal Oswal Financial Services, metal companies have been under tremendous pressure in the recent past due to the falling commodity prices in the global markets. China is already suffering from over-capacity and this is hurting Indian as well as global resource companies — as witnessed in the case of Glencore earlier in the week.
“The impact has started to reflect on market valuations and stock performances of these companies already.
Although two-thirds of the Sensex and Nifty companies are doing well, the performance of the other third, led by commodity-linked companies, is pulling down the overall performance of benchmark indices,” Agrawal said. Among commodity companies, state-owned Oil & Natural Gas Corporation (ONGC) has had the biggest negative impact on the Nifty with a 61.07-point fall, followed by Vedanta (39.3 points) and Tata Steel (36.9 points).
All three stocks have fallen in the range of 32-60% so far this calendar year, which has led to erosion of tens of thousands of crore in market value. Analysts said the sharp fall in Vedanta’s market capitalisation would also make its proposed merger with cash-rich Cairn India difficult. Vedanta’s market value has declined Rs 38,481.63 crore.
The latest bout of fall in metal scrips was triggered on Monday following a slump in shares of Anglo-Swiss company Glencore, which fell 30% — its biggest single-day decline. As a result, metal indices on Indian stock exchanges fell to their lowest level in two years.
The falling commodity prices in global markets have lead to a sharp rise in the imports of metals, especially steel. International crude oil prices on the Intercontinental Exchange have halved in the last one year. Copper prices on the LME have fallen more than 35%, while steel prices have corrected 25-30% during the same period. Benchmark aluminium prices on the LME have also lost about 25%.
US based investment banking firm Jefferies said in a note that long-term prospects for the steel sector remain bleak, despite the increase in safeguard duties that would provide relief to the sector in the near term. “We expect steel prices to stay low for longer, leading to sustained margin pressure and rising balance stress for these firms,” the note said.