metal stocks: Hindalco, Tata Steel and other metal stocks rally up to 4%. Here’s why

Shares of metal companies like Vedanta, National Aluminium (NALCO) and Tata Steel among others continued their rally for the second consecutive session today, rising up to 4% as China’s central bank announced broad monetary stimulus and property market support measures to revive the economy.

Shares of NALCO surged by 4.2 % to day’s high of Rs 199.50, NMDC’s shares increased by 2.3% to Rs 229.20 while those of Vedanta gained 3.3% to Rs 485.95.

Other metal stocks like Tata steel, SAIL, Hindalco and Hindustan Copper rose between 1.5-2.5%.

The China Central Bank Governor Pan Gongsheng on Tuesday announced plans to lower borrowing costs and inject more liquidity into the economy while also announcing that the reserve requirement ratios (RRR), the percentage of cash banks are required to hold as reserves, will be cut by 50 basis points (bps), in the near future.

The world’s second-largest economy is the largest consumer of metals and moves to spur economic activity are seen as a positive for commodities and the news of China slashing interest rates on outstanding mortgages to boost consumption has led to an uptick in metal stocks.

“Historically, while a rebound in metal prices is anticipated in the short term, it has often fallen short of expectations,” said Parthiv Jhonsa, Lead Analyst (Metal & Mining), Anand Rathi Institutional Equities.There may be opportunities to renegotiate or refinance existing mortgages among banks, and the government plans to enhance its re-lending program for state-owned firms to help absorb unsold property inventories.The People’s Bank of China is set to further ease monetary policy, lowering its new benchmark, the seven-day repo rate, by 0.2% points to 1.5%. Additionally, the medium-term lending facility rate will see a reduction of approximately 30 basis points, while loan prime rates will decrease by 20-25 bps.

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However, Pan did not provide a specific timeline for when these changes will take effect, leaving markets anticipating the implementation.

The Chinese policy adjustments follow the US Federal Reserve’s substantial rate cut last week, a move that many analysts believe gives the People’s Bank of China (PBOC) greater flexibility to ease monetary conditions. This approach allows China to stimulate its economy while minimizing downward pressure on the yuan, as global monetary dynamics shift in response to the Fed’s actions.

“We believe that the Chinese housing market has been struggling for the past four years, and unless there is stabilization in prices and a reduction in unsold inventory, any government initiatives will likely be inadequate,” added Jhonsa.

On the technical front, the Nifty metal index has given an Ascending Triangle breakout on a daily scale. Further, it has formed a sizable bullish candle on a breakout day, which adds strength to the breakout.

“Most noteworthy, the daily RSI has surged above the 60 mark for the first time after the 77-trading session. Hence, we believe it is likely to continue its upward journey and test the level of 10,050, followed by 10,200 in the short-term,” said a report by SBI Securities.

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