After a heavy sell-off last week, should you buy beaten down metal names?

NEW DELHI: Metal stocks were among the worst performers on Dalal Street during the last week, thanks to a surprise steep export tariff hike from the government.

In an attempt to rein in inflation, the government imposed a 15 per cent export duty on a range of finished steel products. This attempt is to discourage steel makers to export and cool off the prices in the domestic market.

Following the announcement, Nifty Metal declined nearly 9 per cent during the week, led by losses in the likes of JSW Steel, Tata Steel, Jindal Stainless, Welspun Corp, etc. Many of the metals and mining stocks hit their 52-week lows in the process.

So, does this mean you can bottom fish in the sector and position yourself for any rally in these stocks? Analysts believe that will not be a wise choice, and if you want to buy, waiting will be a much better option.

“Investors should wait for some more dip in the metal sector and once the situation settles down, they should start accumulating fundamentally good scripts for long term gains,” said Mohit Nigam, Head - PMS, Hem Securities.

India has been increasing its steel exports over the last two years and has the potential to become part of a larger global supply chain. Thus, shares of metal companies also rallied on improving outlook drawing more buyers. But this hike of export duty on steel will be negative for the steel sector in the near future and we can see pressure on metal going forward, said analysts.

Technically, Gaurav Bissa, Vice President at Trustline Securities, underlined that metals had been one of the strongest performing sectors and also one of the last to witness a correction led by negative divergence on the RSI and MACD.

“The index has seen a bounce on account of being oversold on smaller time frames. On the daily chart, the index has support at the 4,950 level and a close below this can lead to incremental pressure on the index. Traders and investors should wait for a follow up buying to emerge above 5,300 levels before deciding to buy into the metal names,” he said.

Pritesh Mehta, Lead Technical Analyst - Institutional Equities, YES Securities, remarked that the inter-market relationship is in a mess currently, which is taking a toll on the commodities space.

“US dollar index retreated off its peak, yet the structure is bullish, a pullback is seen in commodity currency, i.e., Australian Dollar Futures, yet the overall structure is bearish. If these situations persist, there appears to be no point in calling a bottom in metals space,” he said.

“Ratio of Nifty Metal vs Nifty is trading below the yearly mean, implying a continuation of metals underperformance against the benchmark index. Cool-off in DXY has led to some respite in metals space, yet it continues to be a vulnerable place, prone to high swings. Rather than chasing a beaten down space, sticking to recent outperformers like autos and banks would provide a better trading opportunity.”

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)