The Nifty Metal index has given positive returns for the fourth straight year in 2023, rising more than 15 percent in this calendar year. However, it has underperformed the benchmark indices with Nifty jumping nearly 19 percent this year so far.
Meanwhile, the index has given record returns in the previous years. In 2022, it collected 22 percent after a 70 percent increase in 2021 and a 16 percent increase in 2020. However, in 2019 and 2018, the index gave negative returns.
Although the metals index did not perform as well as in 2022 or 2021, the share prices of most metals companies in the ferrous and non-ferrous space continued to rise with some increase seen in steel and base metal prices over the past few months.
Following the overall positive market sentiment, the index hit its new record high of 7799.05 this week on December 19, 2023. It has now jumped 50 percent from its 52-week low of 5,209.35, hit on February 28, 2023. .
In 2023 YTD, the index has given positive returns in 8 months and negative in 4 so far. It has added nearly 10 percent in December so far after a roughly 9 percent gain in November. However, the index shed nearly 6 percent in October.
Constituents
Although the metals index is not the best performing index this year, two of its components have more than doubled investor wealth, which is the most of any sector index in 2023 YTD.
Jindal Stainless (JSL) soared the most, up more than 130 percent, followed by Welspun Corp, which rallied 124 percent in 2023 YTD.
JSL’s growth comes on the back of exceptional earnings performance. In the September quarter, the company’s net profit rose 120 percent ₹764 crore against a net profit of ₹347 crore in the September 2022 quarter.
Its total revenue came in at ₹9,797 crore in Q2, up 12 percent vs ₹8,751 crore in the corresponding period of the previous fiscal. Meanwhile, its EBITDA climbed 80 percent to ₹1,231 crore in the second quarter of this fiscal ended ₹685 crore in the corresponding period in the previous fiscal. Net debt in the quarter came ₹2,149 crore and the net debt-to-equity ratio was maintained at 0.2, which is one of the best in the metals segment, the company said.
Meanwhile, Welspun Corp also peaked on the back of the company’s strong Q2 performance and future growth plans.
The company posted a consolidated net profit of ₹386.59 crore for the quarter ended September 2023 against a net loss of ₹63.18 crore in the corresponding quarter a year ago. Total revenue grew almost 2-fold to ₹4,161.41 crores of ₹2,140.86 crores. Meanwhile, its associate company East Pipes Integrated Company for Industry (EPIC) has signed a contract with Saudi Aramco, which is worth approx. ₹1,000 crore for the production and supply of large-diameter steel pipes. Further, in a recent exchange filing, the company said as part of its ESG journey, it has entered into an arrangement for the supply of renewable energy under a Group Captive Structure with Mounting Renewable Power Limited (MRPL), a subsidiary of Welspun New Energy.
Apart from these 2 multibaggers, 10 Nifty Metal stocks gave double digit returns while 3 were in the red.
Hind Copper advanced more than 90 percent, followed by Ratnamani Metals, more than 75 percent and NMDC, more than 59 percent. Meanwhile, APL Apollo Tubes, NALCO, SAIL, Jindal Steel, Hindalco, Tata Steel and JSW Steel rose between 10 percent and 50 percent each.
However, Adani Enterprises lost the most, nearly 24 percent, followed by Vedanta and Hind Zinc, down 16 percent and 3 percent, respectively.
2024 perspective
Going forward, analysts expect the volatility to continue in the metals space and see selective stocks outperforming the rest.
Kotak Institutional Equities prefers investments in ferrous stocks, especially those related to steel and iron ore, over base metals such as aluminum and zinc producers. This preference is driven by an optimistic growth outlook and the potential for increased profit margins, especially given negative spreads in China.
It recommends buying JSPL, TATA and NMDC, selling SAIL. This advice is based on the perceived market conditions and expectations for growth and profitability in the iron sector. Investors are advised to do their own research and consider their risk tolerance before making any investment decisions.
“During the third quarter of fiscal year 2024 (3QFY24), steel prices experienced a decline, indicating that steel prices in 3QFY24 are expected to remain stable to marginally higher sequentially. Despite this, the cost of raw materials involved in steel production, such as iron ore and coking coal, is expected to increase sequentially in 3QFY24, which would likely result in flat quarter-on-quarter (qoq) margins. The combination of lower output prices in 3QFY24 and elevated raw material costs factoring in the inventory delay is expected to put downward pressure on spreads in fourth quarter of fiscal year 2024 (4QFY24).
Despite strong volumes driven by higher exports to the European Union (EU) and robust domestic demand, the outlook is overshadowed by the prospect of weaker steel spreads in the near term. This suggests that while the steel industry may experience solid demand, the impact of reduced spreads could pose challenges to profitability in the coming months,” it explained.
Meanwhile, analysts at HSBC Global Research said the outlook for metals remains clouded by Chinese property concerns and macro uncertainty in the rest of the world.
Elara also warned that until international metal prices see a significant increase, domestic steel prices may also see a limited increase. For base metal prices, the supply-demand scenario remains unfavorable.
Further, brokerage house Motilal Oswal Financial Services informed, “Our channel checks confirm that sell level prices have remained slightly subdued and are expected to remain bound in the near term.”
According to the brokerage, domestic prices are currently trading at a premium compared to international prices. Despite this, MOFSL foresees a positive outlook for the steel market due to increased demand from various sectors, including automobiles, infrastructure, construction and consumer durables. This expected boost in demand is projected to provide support to both overall demand and prices in the domestic steel market.
Disclaimer: The opinions and recommendations made above are those of individual analysts or trading companies, and not of Mint. We advise investors to check with certified experts before making any investment decision.
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Published: 20 Dec 2023, 14:24 IST
(tagsTo Translate)Markets