The NSE Nifty Metal index ended 2.7% higher on Wednesday, recording its highest closing level of 11,661.40. Gains were led by Vedanta, which surged 6.1%, followed by Hindustan Copper, National Aluminium and Hindustan Zinc, which were up 4-5.5% each.
The benchmark Nifty 50 ended 0.26% lower at 25,665.6 on Wednesday.
While silver jumped over 5% to cross $90 an ounce for the first time on Wednesday, gold also made a fresh all-time high, crossing $4,620 per ounce, as per data from tradingeconomics.com. Copper futures are also trading at record highs.
Precious metals such as gold and silver got support from US Federal Reserve rate cuts, escalating geopolitical tensions and a correction in the dollar index, said Netra Deshpande, research analyst at Mirae Asset Sharekhan. “This has led to a sustainable demand for metal producers‘ stocks,” she said. Industrial demand remains robust amid expanding manufacturing activity. Imposition of safeguard duties on certain steel products have made these companies more attractive, according to Deshpande.
Agencies Debasement Trade
Extension of quality control norms for some metals like steel and copper until March has added to the upside. “Rising renewable energies and electrification will ramp up more demand for copper and other non-ferrous metals in near term,” said Deshpande.
The rally has been driven by ‘debasement trade,’ with investors steering clear of government bonds and currencies amid concerns over rising debt burdens, particularly benefiting precious metals. Gold rose 64% last year, while silver jumped almost 149%. Copper is up nearly 39% in the past year, and its futures are currently trading over $6 per pound. While there is no direct producer of gold in India, producers of copper, silver, lead, aluminium and others have benefitted from the up-move. Shares of Hindustan Zinc have gained 50%, Hindustan Copper is up 153%, Vedanta has gained 57% and National Aluminium has advanced 87% in the past year. The metal index has outperformed the Nifty 50, and is up 41% in the past year, against Nifty’s gains of 10.7%.
Mixed Outlook
Analysts are divided over the prospects of metal producers.
While underlying demand remains intact in silver for both industrial and investment use, and in copper and other metals for industrial applications, stocks of its producers such as Hindustan Zinc and Hindustan Copper appear overbought after their sharp gains, said Ajit Mishra, senior vice president, research, Religare Broking.
“Any earnings disappointment could trigger a sharp fall and we advise against fresh buying in these names in the short to medium term,” he said.
“Existing investors may consider partial profit-booking ahead of Q3 results.”
Mishra said steel stocks such as JSW Steel, Tata Steel, Jindal Steel and SAIL, which have lagged behind during the rally, could see a near-term upside and may offer good opportunities for short-term players. Others see the ongoing metals rally continuing to reflect in share prices.
“We expect demand momentum to remain sustainable in the coming months, and investors can continue to add metal stocks like Hindustan Zinc, Hindustan copper, JSW Steel and Vedanta to their portfolios,” said Mirae Asset ShareKhan’s Deshpande.