Nifty Metals Index Rallies As CLSA Says 'Worst Looks Behind'; Vedanta, Hindalco Among Top Picks
Much of this uptrend is coming on the back of a CLSA note that suggested the "worst looks behind" for the sector.
Amid a largely flat trading day, Nifty Metal has emerged as the top-performing sector, led by strong gains in Lloyds Metals, Welspun Corp and Nalco, among others.
The Nifty Metal index is trading with gains of almost 1.5%. Lloyds Metals is the top-gaining stock within the Nifty Metal index, with gains of more than 2.6%. Hindustan Copper and Welspun Corp have also showcased similar gains in trade today.
Much of this uptrend is coming on the back of a CLSA note that suggested the "worst looks behind" for the sector.
CLSA View On Metal Space
In its latest note, CLSA highlights improving fundamentals and signals an end to the prolonged demand-supply mismatch seen over the past year, as far as the metals space is concerned.
China, which accounts for 60% of the global steel output, has been aggressively cutting steel production as part of its “anti-involution” drive. This has largely aided other global players, including Indian companies.
CLSA believes these supply adjustments, coupled with the prospect of further cuts, have helped stabilise global steel prices while giving Indian companies some much-needed breathing space.
On the domestic front, Indian steel imports have fallen largely due to strong import duties adopted by the government. The industry, therefore, is now trading at a discount to import parity.
This essentially means steel producers are able to command a higher premium on domestic sales because of local supply tightening. This would explain the rally in Welspun and Lloyds Metals, among others.
Meanwhile, aluminium producers such as Nalco are benefitting from a favourable balance between consumption and supply, with aluminium prices remaining resilient due to global consumption outpacing production growth, CLSA notes.
CLSA's Top Picks In Metals Space
CLSA maintains its 'outperform' ratings on sector leaders such as Hindalco, Vedanta, and Jindal Steel.
Coal India remains a preferred play for its high-dividend yield, though the target price has been trimmed to Rs 405. JSW Steel is the only stock given an 'underperform' rating by the brokerage firm.
