Metals to shine some more in trading rally

Mumbai: Shares of metal companies are poised for a short-term rally as the decline in the dollar index could extend the bullish momentum in these stocks. The Nifty Metal index, which gained 1.7% on Monday, has rallied 14% in the past month compared to a 7% gain in the Nifty index. Analysts said many of these stocks could advance by another 5-7% soon. Hindalco, JSW Steel, and Tata Steel are their top picks.

The Nifty Metal index, which closed at 6558.5 on Monday, is above the September peak and is just 3.9% below the record high seen in April this year. Analysts said the Nifty Metal index has crossed its resistance of 6,500 and remains in a buy-on-dip mode as long as it has supports 6,200 on the downside.
"The dollar index has formed a medium-term top which will lead to the rally in the metal index," said Kunal Shah, senior technical & derivative analyst at LKP Securities. "The rally is likely to continue in the short term in the metal index towards 6,800 levels with strong buying seen at the lower levels."

After foreign institutions and domestic mutual funds dumped metal and mining shares worth ₹2,995 crore and ₹4,642 crore, respectively, in September, overseas funds were buyers worth ₹217 crore in October.

"Aluminium manufacturers are just picking up momentum and have another 5% upside prospects before it tests the 50% Fibonacci Retracements of this year's fall," said Anand James, chief market strategist, Geojit Financial Services. "Hindalco has a weightage of 14.76% in the metal index. JSW steel which is another biggie in the index with a 15.83% weight, is in the formation of cup handle bullish formation. All of these embellish the case of a continued uptrend in the metal index in the near term."

The expectation of a rebound in the Chinese economy, softening raw material prices, and the US ban on Russian aluminium have rekindled traders' interest.

"In the last 1 month, steel prices are more or less stabilised while China has reduced Covid curbs amid expectation of a rebound in the Chinese economy led to positive sentiment on metal demand recovery globally," said Mitul Shah, head of research, Reliance Securities.

"Correction in raw material prices and falling coal prices would support margins of the metal companies going forward while the second half of FY23 would be healthy for them due to pick up in domestic infrastructure activities post monsoon," he added.