Metal Stocks Outlook for the week – 26 to 30.10.2015
Seen
range-bound with a negative bias next week
( www.rupeedesk.in )
Stocks
of major metal companies are seen range-bound and trading with a negative bias
next
week due to their likely weak financial performance and the prevailing
environment
of
lower commodity prices and subdued demand. The surprise rate cut announced by
China's
central bank yesterday may have a short-term positive impact on metal stocks as
the
measure may be seen as raising domestic demand in China and taking pressure off
prices
globally, including in India. However, the positive impact on Indian metal
companies'
stocks is unlikely to sustain as sector fundamentals remain weak.
After
Indian market hours, China announced that it had cut its one-year lending rate
and
one-year
deposit rate by 25 basis points and reduced its reserve requirement ratio by 50
basis
points to boost the economy. This led to prices of base metals on the London
Metal
Exchange
advancing, which may help stocks of domestic metal and mining companies on
Monday.
Overall,
metal companies' stocks are likely to track the broad market but some stock
specific
movements may be there given the on going earnings season for the Jul-Sep
quarter.
While the general sales trend has been positive, the steep fall in commodity
prices
has resulted in fall in sales in the metals and oil and gas sectors. From our
universe
of
coverage, we expect to see a on-year reduction of 13.4% in sales turnover for
metals.
Metal
stocks universe will report a 22% fall in margins led by NMDC with a 60%
EBITDA
contraction in the Jul-Sep quarter. Vedanta Ltd is scheduled to detail its
earnings
on Tuesday. The company's net profit for Jul-Sep is seen is seen down 62% on
year
and 29% on quarter at 6.17 bln rupees, particularly on account of low commodity
prices.
The current upward movement may continue for the Jindal Steel & Power Ltd
stock.