NEW DELHI: After a strong rally in recent times, metal stocks are under some heavy selling pressure. Amid concerns over Chinese steel production and faltering global growth, shares of metal companies fell between 4-9% on Friday with the BSE Metal index plunging nearly 7%.
Sector giant Tata Steel, whose stock value has grown over 200% in the last one year, fell over 8% per cent to close the Friday session at Rs 1,375. Vedanta, Jindal Steel & Power (JSPL), Vedanta, NMDC and Steel Authority of India (SAIL) dropped between 5-9% on the BSE.
This sharp selling is mainly attributed to expected fall in Chinese steel output and consumption as the Country has directed steel mills to curb output to meet carbon emission goals. “Though metals started the week outshining other indices, a sharp plunge in iron ore futures across the world triggered heavy selling in the sector,” said Vinod Nair, Head of Research at Geojit Financial Services. Analysts at BofA Securities believe that rally in metals is likely near an end.
The poor performance of metal stocks also dragged down the benchmark indexes as Sensex and Nifty both fell over half a per cent on Friday. In the coming sessions, market is expected to remain under pressure and even witness a major correction. At present, global cues are not favourable as Federal Open Market Committee (FOMC) meeting minutes suggested the increase of the likelihood of tapering of asset purchases in CY21.
“Our analysis of past market rallies suggests the current rally could have limited further runway. We see risk of estimate cuts and with valuations at a peak, we expect markets to correct 9% near term with our Nifty target at 15000,” said BofA Securities in a note on 20 August.