After experiencing a significant downturn over the previous six trading days, the Indian stock market showed signs of recovery on Tuesday. However, the metal stocks sector faced adverse conditions as the Nifty Metal index recorded a notable drop, attributed to China’s economic planners falling short in announcing additional stimulus measures to invigorate its economy.
The Nifty Metal index decreased by 3.15%, closing at 9,574—the lowest level since September 24. Despite a slight recovery during the afternoon session, the index remained down by 1%. NMDC led the downturn with a sharp decline of 4.4%, experiencing a staggering drop of almost 8% at one point. Other major players, such as Tata Steel and JSW Steel, also reported losses, each declining by more than 2%.
Investors were keenly awaiting the much-anticipated briefing from China’s National Development and Reform Commission, anticipating robust fiscal measures. Unfortunately, the briefing concluded with no significant promises for enhanced government spending.
Market analysts had expected substantial fiscal support from Beijing, including trillions of yuan in bond issuances and measures aimed at boosting consumption. Instead, the government rolled out a modest investment plan of CNY 100 billion for the next year, significantly lower than the current year’s allocation of CNY 1 trillion, according to media sources.
As a consequence, copper prices fell sharply, hitting two-week lows. The November copper contract on the Shanghai Futures Exchange (SHFE) concluded 1.9% lower, at 77,310 yuan (approximately $10,952.29) per metric ton. Additionally, the rising anticipation of a less aggressive monetary easing strategy from the Federal Reserve contributed to the declining metal prices following a stronger-than-expected jobs report for September.
The CME FedWatch tool indicated a significant shift in market expectations, with no longer factoring a 50-basis-point cut at the Fed’s forthcoming November meeting. Instead, there is now an 88% probability of a 25 basis-point reduction.
Market participants are eagerly awaiting the release of minutes from the Fed’s recent policy meeting, which are due on Wednesday. This will be followed by the U.S. Consumer Price Index (CPI) report on Thursday and the Producer Price Index (PPI) data on Friday. Furthermore, several Federal Reserve officials are scheduled to present their insights throughout the week, adding further anticipation in the market.
Despite the decline seen today, Indian metal stocks have generally demonstrated resilience amid recent market fluctuations, partially bolstered by a series of stimulus initiatives introduced by Chinese authorities. These measures have included reductions in lending rates, lowered reserve requirements, and direct fiscal support aimed at lower-income demographics, which initially resulted in price boosts for various metals.
Anticipated Mixed Performance in Q2 for Metal Companies
As we look towards the upcoming quarterly results, metal companies are expected to report a varied performance for the September-ending quarter (Q2FY25). The sector for ferrous metals is likely to show a significant decline in profits, whereas non-ferrous metals are projected to greatly benefit from heightened pricing.
Brokerage firm Motilal Oswal has indicated that the steel sector may experience subdued performance primarily due to weak pricing and volume dynamics. However, the anticipated decline in input costs could provide some level of cushioning for the sector.
They forecast flat volume growth due to seasonal impacts from the monsoon and increased imports at lower costs. Net Sales Realization (NSR) is expected to drop by approximately ₹3,000-3,500 per ton quarter-on-quarter (QoQ), while coking coal expenses are likely to decrease by $15-25 per ton.
In contrast, non-ferrous companies, under their coverage, are projected to witness improved revenue, EBITDA, and Profit After Tax (PAT) on a QoQ basis compared to their ferrous counterparts. The aggregate EBITDA decline for non-ferrous companies is expected to remain within the mid-single digits.
On the flip side, mining companies are anticipated to report a sequential decline attributable to weak volumes due to the monsoon season and reduced prices during Q2 FY25. A 16% QoQ drop in volume for Coal India and a 2% QoQ dip for NMDC are projected. Furthermore, NMDC’s price reduction of ₹1,000 per ton in Q2 is expected to lead to a roughly 26% contraction in EBITDA.
Disclaimer: The insights and recommendations in this article reflect the perspectives of individual analysts and do not represent the views of Mint. We advise investors to consult certified experts before making any investment decisions.
