Gaurav Garg
Indian metal sector has been one of the top GDP contributors from India Inc providing more than 2 percent to the gross domestic product. In FY18-19, India was the third-largest producer of coal and the fourth-largest producer of iron ore. From a geographical standpoint too, the country is strategically placed to promote further exports.
Moreover, FDI has also utilised the maximum limit of 100 percent in the mining sector and exploration of metal and nonmetal ores through the automatic route, due to which many international players have entered these industries.
During 2018, India jumped from the third spot to became the second-largest producer of crude steel after production of the metal increased from 101.5MT in 2017 to 106.5MT. Demand for iron and steel will further increase as the residential and commercial sector is expected to grow exponentially.
However, due to weak global demands, the earnings of top metal producing companies have come under pressure, so far in FY19-20. Aluminium prices are currently at several years' low, this coupled with the overhanging global trade war, especially between China and US, have made matters worse.
All major Indian players including Vedanta, Hindalco, Tata Steel, Hindustan Zinc and others continue to be under pressure in terms of their margins and bottom lines.
Nifty Metal has witnessed correction of more than 38 percent since its 52-week high of 3,776.05 in January 2018. It is currently trading in the range of 2,300–2,600.
Mounting trade tensions along with soft prices have hurt the sentiments that have only worsened with the slowdown in China. A majority of metal stocks have corrected more than 50 percent with names such as SAIL, Vedanta, Jindal Steel, JSW Steel getting affected the most.
Overall, the sector is expected to recover from the current turmoil, and we can see growth in terms of earnings and lifting of the demand-supply curve. Power and cement industries is also expected to provide support to the metals and mining sectors. US elections can also play a vital role in the future perspective and prove to be a major turnaround.
(The author is Head of Research at CapitalVia Global Research Limited.)
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