Metal stocks were in focus on Tuesday after China’s central bank announced sweeping stimulus measures to boost the world’s second-largest economy. Nifty Metal index jumped nearly 3 per cent to settle at 9,735.40 points, hitting a nearly two-month high on Tuesday. Shares of metal companies like Vedanta, National Aluminium (NALCO) and Tata Steel among others surged up to 5 per cent on BSE today.
Other metal stocks including JSW Steel, Jindal Steel, Hindalco and Hindustan Copper rose in the range of 2-3 per cent.
Deepak Jasani, head of retail research at HDFC Securities says the risk appetite for metal stocks improved after China’s central bank announced the economic measures.
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People's Bank of China (PBOC) Governor Pan Gongsheng on Tuesday announced plans to reduce borrowing costs and allow banks to increase their lending. The move comes after a series of disappointing data has raised concerns in recent months that China will miss its own 5 per cent growth target this year.
Pan said the central bank would cut the amount of cash banks have to hold in reserve – known as reserve requirement ratios (RRR). The RRR will initially be reduced by half a percentage point, in a move expected to free up about 1 trillion yuan ($142 billion).
Additional measures aimed to boost China’s crisis-hit real-estate market include cutting interest rates for existing mortgages and lowering minimum down payments on all types of homes to 15 per cent.
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The country’s real estate industry has been struggling with a sharp downturn since 2021. Several real-estate developers have collapsed, leaving large numbers of unsold homes and unfinished building projects. China’s new economic stimulus measures come just days after the US Federal Reserve lowered interest rates for the first time in more than four years with a bigger than usual cut.
China is the largest consumer of metals and moves to boost economic activity are seen as a positive for commodities. The news of China reducing interest rates on outstanding mortgages to boost consumption has led to an uptick in metal stocks.
Parthiv Jhonsa, Lead Analyst (Metal & Mining) at Anand Rathi Institutional Equities, notes that historically, while a short-term rebound in metal prices is expected, it often falls short of those expectations.
“We believe that the Chinese housing market has been struggling for the past four years, and unless there is stabilization in prices and a reduction in unsold inventory, any government initiatives will likely be inadequate,” Jhonsa said.
A few global companies and commodity experts say offtake in China is considerably lower than expected. According to a recent report by Anand Rathi Share and Stock Brokers, the piecemeal stimulus by the Chinese government over the last few quarters has not led to a meaningful revival in the sector and unless the government undertakes a substantial stimulus, the near-term outlook will be bleak.
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The Chinese government is also expected to lower the outstanding mortgage rate and reduce the down payment required for second home purchases. Additionally, there may be opportunities to renegotiate or refinance existing mortgages among banks, and the government plans to enhance its re-lending program for state-owned firms to help absorb unsold property inventories.
Jathin Kaithavalappil, AVP- Institutional Research at Choice International says such measures can be effective only when excess inventory in the housing market is tamed.
“Rally in metal stocks reflects optimism among investors, that having supported the property market, China’s expected support may increase demand and add profit margins for Indian companies dealing in metals,” he said.
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