Hindustan Zinc, Vedanta, NALCO, other metal stocks tumble up to 7%: Here are 3 reasons

Metal stocks fall

• Metal stocks dropped sharply, with Nifty Metal index falling nearly 3 percent
• Profit booking and fall in precious metals contributed to the downturn
• Stronger US dollar pressured metal prices and demand

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The shares of metal companies sharply dropped in trade on February 5, emerging as the top losers on the market today. Profit booking and fall in precious metals were among the key reasons behind the downturn.

The Nifty Metal index fell nearly 3 percent to 11,726 in the early trading hours of Thursday, snapping a three-day gaining streak.

Metal stocks plunge:

Hindustan Zinc shares dropped around 7 percent to Rs 593.25 apiece, falling below of Rs 600-mark after two days. The shares of the largest producer of silver in India snapped a three-session gaining streak.

Vedanta shares fell nearly 5 percent, while National Aluminium Company (NALCO) shares fell around 4 percent, as seen at 9.45 am. Hindustan Copper and Hindalco Industries shares dropped nearly 3 percent each, while NMDC and Lloyds Metals And Energy shares fell around 2 percent each.

Steel Authority of India (SAIL) and Tata Steel shares fell more than 1 percent each, while JSW Steel and Adani Enterprises shares fell around 1 percent each. Jindal Steel, APL Apollo Tubes and Jindal Stainless Steel shares were down in the red with marginal losses, while Welspun Corp shares bucked the trend to trade in the green with marginal gains.

Here are key factors behind the downturn in metal stocks today:

Profit-booking:

The sharp fall in metal stocks comes as investors may have resorted to profit booking at elevated levels. The Nifty Metal index gained more than 6 percent in the past three sessions to close at 12,044.25 yesterday.

Stronger dollar:

The US dollar remained steady ahead of interest rate decisions from the European Central Bank and the Bank of England. The U.S. dollar index, which measures the greenback's strength against a basket of six currencies, was up 0.2% at 96.671, having traded near a two-week high earlier.

The dollar has gained some strength this week as financial markets assess U.S. corporate earnings season, now halfway complete, and stocks turn risk-off.

A stronger dollar makes commodities like metals, which are priced in dollars, more expensive. As a result, the metal companies see some pressure on demand, and thereby on prices.

Fall in precious metals:

Gold futures with April expiry fell around 3 percent to Rs 1,48,455 per 10 grams on Thursday. The contracts with June expiry also fell around 3 percent.

Silver futures with March expiry dropped 6 percent to Rs 2,52,719 per kilogram. The contracts with May expiry also fell 6 percent.

Several of the metal companies like Hindustan Zinc and others are producers of these commodities. Hence, the fall in the prices of these precious metals will likely impact the stocks.

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