NALCO, Vedanta, Hindalco, others drag Nifty Metal: How did metal stocks perform on October 7?

Metal and mining stocks like National Aluminium, Vedanta, Hindalco, Vedanta Aluminium, JSW Steel, and Hindustan Zinc, among others, dragged down the Nifty Metal index by 2.3% on Wednesday, October 7, as investors focused on the pullback in commodity metal prices and the RBI’s latest rate-hike move.

NSE data showed that the sectoral benchmark Nifty Metal index lost 2.3% to touch an intraday low of 12,303.45 points on Wednesday’s market, in comparison to 12,599.75 points at the previous equity market close.

Stocks like National Aluminium, Adani Enterprises, JSW Steel, Hindalco and Jindal Steel were leading the pack of laggards during the trading session on October 7, while the index was down 2.2% as of the afternoon market hours hovering around 12,310 points.

Equity market investors were reacting to the Reserve Bank of India’s latest move to increase the key interest rates for the Indian economy while changing its stance to ‘calibrated tightening’ from the earlier ‘neutral’ zone.

Higher interest rates in the economy are a negative trigger for the capital-intensive sectors like metal and mining, which need heavy financing and credit support to carry out their capex expansions or production.

Elevated interest rates in the economy also increase the cost of funds for these metal and mining companies, which, combined with the softening commodity metal prices in the global market, further dented the sentiment amongst Indian investors.

While banking and other financial services stocks gained on Wednesday’s market, sectors like metals, auto, real estate, among others declined due to the potential impact of the RBI rate hike move in the upcoming period.

Metal stocks in focus today

RBI’s rate hike strategy

The Reserve Bank of India’s MPC committee on October 7 decided to raise the key repo rate by 25 basis points (bps) to 5.5%, in line with market expectations, while changing its stance to ‘calibrated tightening'.

This comes as the central bank aims to counter price pressure and increasing inflation in the country amid global headwinds like elevated global bond yields, crude oil prices, and foreign investor outflows.

While ruling out the possibility of rate cuts in the upcoming period, RBI said that the duration and extent of the current rate hike cycle would be contingent on the actual growth-inflation developments and outlook.

Commodity price impact

Along with the rate hike impact, the global commodity metal prices declining during the trading session on October 7 also added to the subdued sentiment among investors, powering the intraday losses of metal and mining companies.

The volatility of metal prices in the global market has a direct impact on the margins of mining companies and producers, and with the fall in rates, the companies will be bound to sell their production at a lower price, reducing overall margins.

Data showed that Aluminium futures were down 0.80% at around $3,120 as of Wednesday’s market, and the metal prices have lost 5.7% in the last one-month period.

While copper prices also remained under pressure, the future prices were trading 0.4% lower on a one-month basis, and were up 0.22% on October 7. Zinc prices also declined 0.41% on Wednesday’s market.