Metal stocks are slowly heading towards a bear phase – typically described as a fall of 20 per cent or more from peak levels – given the ongoing trade war concerns, feel analysts.
The Nifty Metal index that lost nearly 2.6 per cent in trade on Wednesday was the worst performing sectoral index on the National Stock Exchange (NSE). On a year-to-date (YTD) basis, the index has already lost over 16 per cent as compared to around 5 per cent rally in the Nifty50 index, ACE Equity data shows.
The fall in individual stocks has been much sharper. Hindustan Copper, Jindal Stainless (Hissar), Vedanta, National Aluminium, MOIL and NMDC have lost 27 per cent to 41 per cent till July 13.
On Wednesday, Tata Steel, Hindustan Copper, Vedanta, NMDC and Welspun Corp slipped further between 0.9 per cent and 5.1 per cent to hit their respective 52-week low in intra-day deals.
The Nifty Metal index, they feel, can slip 5 – 10 per cent more over the next few months from the current levels in case trade war fears escalate. In this backdrop, the fall in individual stocks could be higher at around 10 – 15 per cent by CY18 end, they say.
“Companies are not doing any major expansion across the globe. Investment in infrastructure or building factories, too, is lacking. Given this, metal stocks are likely to underperform. Investing in this market segment is not a good idea. The Nifty Metal index is likely to end CY18 around 20 – 25 per cent lower on YTD basis,” says A K Prabhakar, head of research at IDBI Capital.
Recently, US President Donald Trump imposed a 25 per cent tariff on steel imports. While the steep hike in US steel tariff may not directly impact India, whose steel exports to the US comprises around 3.3 per cent of the total steel exports, analysts say major steel exporters such as China may start looking for new markets to dump their stock. This in turn, will impact steel prices, they say.
The only solace the sector could find is in the steel segment, where the prices could firm up post monsoon on the back of a pickup in economic activity. At the global level, recent news flow around possible output cuts at the steel making city Tangshaan in China could be a positive for Indian producers, says a Jefferies report. Of the lot, Prabhakar recommends JSW Steel form a long term perspective, but at lower levels.
G Chokkalingam, founder and managing director at Equinomics Research & Advisory, too, expects the metal stocks to slip another 10-15 per cent by the end of the year if the current trade war concerns continue.
“Going forward, it all depends on the trade war momentum. Though there are no signs of any moderation so far, an escalation can see the Nifty Metal index dip another 5 – 10 per cent from the current levels over the next few months,” he said.