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Web Exclusive: Should you sell metal stocks?

Sohini Sen/Mumbai 23 Aug 12 | 12:09 PM

The BSE Metal index has outperformed the benchmark indices today with a gain of nearly 1.5 per cent, as compared to a modest 0.5 per cent rise in the Sensex and Nifty. Is this a suckers rally, or do fundamentals support the rise? Should you go ahead and invest your heard earned money in these scrips?

Says Deven Choksey, managing director, K R Choksey Securities, “Metal stocks have gone up mostly on account of signs of stability in the Euro and an improvement in business sentiment. Given this stability, investors are hopeful that the liquidity in the system will come back. Though it is difficult to predict a long-term trend, it looks as if the rally is sustainable till February – March. Known names such as Tata Steel, Sterlite and Hindalco look attractive at the current juncture."

Adds an analyst from a local brokerage, “Metal shares have gone up on hopes that the economic weakness in the US may prompt their Government to take steps towards quantitative easing (QE). Next week's Federal Reserve meeting at Jackson Hole can throw more light on the situation. China's probable rate cuts are part of the monetary measures that their Government has been taking for some time now. No incremental new measures have been taken which can affect the metal space."

"The metal index has gone up because of buying interest in specific stocks, not for any positive news flow in that counter. Fundamentally the problem is that global demand is down. The fall can especially be noticed in steel and iron ore, which has declined in the last 15 days. Even the London Metal Exchange has been witnessing pressure. In India, stocks such as Starelite and Tata Steel look positive in the long run," says Dhrushil Jhaveri, analyst, Prabhudas Lilladher.

"Stock specific action can be seen, but as a whole, the sector is not particularly positive. However, the global environment looks positive at the moment for metal shares. Stocks like NMDC and Sterlite look attractive at the moment," notes Giriraj Daga, senior research analyst, Nirmal Bang.

So, what do the technical charts suggest regarding the frontline stocks?

“One can short Jindal Steel, as the trend is down on the charts. The near-term target Rs 375 and the stop loss would be Rs 427 on closing basis. SAIL is also a SELL candidate with a stop loss of Rs 90 as per closing basis; the target expected is Rs 75. One can book profit in Tata Steel also. It has a target of Rs 382 with a stop loss of Rs 415 as per closing basis," said Ravi Nathani, technical analyst,

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