Nifty Metal was the best performer among sectoral indices on NSE on Tuesday. At 11:39 am, the sectoral index was up 3.3 percent at 5,598.80 with shares of Tata Steel, JSW Steel, Vedanta and Hindalco Industries contributing the most to the upmove in the metal index today.
JSW Steel and Tata Steel were also the top gainers on Nifty50. The rise in metal stocks today was backed by an uptick in global base metal prices.
Year-to-Date, Nifty Metal has gained 72 percent and in the past year, it has soared 100 percent. This is in comparison to the 50-stock index that is up 25 percent YTD and up 35 percent in the past year.
Metal stocks have rallied on the back of commodity inflation lately, according to Nirav Karkera, Head of Research, Fisdom.
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With the inflationary pressure prevailing, metal companies stand to benefit as their realisations are expected to get a boost.
“Metal sector is still appealing but to my mind, one should only be stock-specific because it is hard to determine where the froth lies,” said Purvesh Shelatkar, Head of Institutional Broking, Monarch Networth Capital.
Reopening of the domestic economy and an expected full-fledged recovery in construction activity lend comfort to the market in terms of demand outlook for the sector.
Additionally, the government may announce some encouraging measures for the infrastructure sector in the upcoming Union Budget which could provide a fillip to metal companies and further boost demand, Shelatkar added.
Technical analysts also believe some metal stocks appear good on charts.
Kkunal Parar, Vice-President of Research, Choice Broking suggests one could buy Vedanta when the share price drops a bit. One could buy the stock at Rs 260-270 levels from the long-term perspective.
Meanwhile, other stocks that look good on charts are Tata Steel and JSW Steel, Parar said.
Tata Steel still offers another 4-5 percent upside from the current Rs 1,200 levels and JSW Steel has given a breakout at Rs 660 which has created room for more gains in the stock up to Rs 730, he added.
Parar said, SAIL is also a good bet but from an investment horizon of more than one year. The stock is currently trading slightly over Rs 100 and has the potential to scale Rs 400, he added.
“The near-term ride could be choppy, allowing investors to build allocations towards metal stocks at pullback points. In the medium to longer term, we can expect the sector’s margins to improve on the back of the scale, operating efficiency and structural demand led by global economic expansion,” added Karkera.
However, Karkera quickly added that this rise in metal stocks is a temporary phenomenon as some profit booking is expected after such stellar returns.