 "Metal stocks strengthen on China data")
The outperformance comes on the back of reports that the Chinese economy expanded at a rate of 7.5 per cent in the second quarter (April –June). The rise was even better than the 7.4 per cent median Reuters’ poll forecast. China, the world’s second-largest economy, is also the world’s largest consumer of copper and aluminium.
“The pace of growth in Chinese economy was better than expected and this has been the case for the second consecutive quarter. This is also a confirmation that the stimulus measures the Chinese government adopted in the first quarter are bearing fruit. The up-move should last and provide tailwinds,” said Tirthankar Patnaik, director (institutional research), Religare Capital Markets.
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Hindalco Industries, Tata Steel, JSW Steel, Jindal Steel and Power, Steel Authority of India (SAIL) and Sesa Sterlite were among the top gainers on Thursday. In the past four trading sessions, the S&P BSE Metal Index has surged seven per cent, as against a two per cent rise in the benchmark index.
But is the Chinese economy out of the woods?
Points out a May Credit Suisse report titled ‘China: The turning point in growth’: “The drag factors around the Chinese New Year are over. Recent strength in automobiles and consumer electronics has led to a pick-up in order flows after an extended period of destocking. Export orders have gathered some momentum, after quite soft flows in the first quarter of 2014.”
“Credit Suisse’s proprietary Li Keqiang Momentum Index suggests the Chinese economy is showing signs of growth bottoming out. The pick-up in this leading indicator is tentative and from a low level but we believe the worst in terms of the economy losing momentum is perhaps behind us,” it adds.
Also, the recent HSBC Emerging Markets Index (EMI), a monthly indicator derived from the PMI (purchasing managers’ index) surveys, indicated stronger output growth across global emerging markets in June. The EMI posted 52.3, up from 50.6 in May, signalling the sharpest rate of expansion since March 2013. Three of the four largest emerging markets contributed to the faster overall rise in output in June with China posting the sharpest increase in output for 15 months, while India saw the steepest expansion since February 2013.
“Besides the expansion in Chinese economy, the outlook for most of the companies is improving, especially for those in the iron ore segment. Going ahead, these companies can show an improvement in production and the worst is over,” said K Subramanyam, assistant vice-president (institutional research), Asit C Mehta Securities.
“As things stand, we don’t recommend buying these stocks from a long–term perspective, though Hindalco and Tata Steel do appear attractive. However, metal stocks are a good trading bet from a near–term perspective,” he adds.
Given the developments, Patnaik of Religare expects JSW Steel, Hindalco and Tata Steel to gain. “There are positive tidings and the metal stocks should gain ground from a sentiment perspective. However, from a fundamental perspective, he believes that NMDC not will be able to hike prices,” he says.