The metals and mining sector saw a sharp increase in commodity prices and steel was one of the best-performing commodities and the metal stocks provided best returns in the during FY 2020-21. Analysts feel the bull run will continue with a pricing uptrend and increasing demand in the segment.
The undertone of the market seems weak as a spike in domestic coronavirus cases and fresh curbs imposed by the state government has hit the investors’ zest. The S&P BSE Metal index has surged 176% in the past one year. Stock price of some of the major metal stocks Tata steel, JSW Steel and Hindalco Industries surged 240%, 263% and 294% respectively. A study report noted that the earnings per share of metal stocks on the Nifty rose by 54% after the third quarter of the last fiscal. The report said that it is quickly getting factored into the prices. Steel prices rallied by 41% in 2020; Copper futures increased 26% in 2020 and 11% in March 2021.
RBC Capital Markets analysts believe fundamentals among copper miners are strong, setting up a tight market for the coming years. They also see the potential for sizable free cash flow generation from copper producers, which could result in multiple expansions because more money will be flowing into the sector.
A recent report noted that copper storage levels at the London Metal Exchange have decreased giving a deficit on supply side due to which prices may rise when combined with heavy volumes, capping the downside move in the metal. The April contract of copper on the Multi Commodity Exchange (MCX) last closed at Rs 669.25 per kg.
“The metals and mining sector has seen a significant pricing uptrend as Chinese data has improved and dollar weakened. This trend is likely to persist in the medium term and metal stocks are likely to perform well,” it said. Metal futures which also were largely on a bull run in the last fiscal are likely to stay in the uptrend going ahead, analysts said. Also, bullish momentum in the lead is expected to continue in the upcoming session.
Bharat Road Network rose 2.56% to Rs 30.05 after the company, signed a deal with Cube Highways for the sale of a 126-kilometre road project in Uttar Pradesh, India. Escorts Construction Equipment segment in March 2021 sold 680 machines, its highest ever March sales, and registered a growth of 252.3% as against 193 machines sold in March 2020.
Based on RBC’s forecast prices, mining shares trading at a 6% premium to net asset value, although that’s a vast improvement from the 32.1% premium they were trading at previously.
