Metal stocks rally on China's realty stimulus, LME gains

On Friday, China announced "historic" steps for the revival of its property sector, which has been in a crisis since 2021. The country's central bank will facilitate $138 billion in extra funding for the sector and ease mortgage rules, while local governments could buy some apartments, according to Reuters.

Analysts said China's announcement has raised hopes that any move to revive the country's real estate sector could boost demand for metals.

"Since China accounts for about 50% of global consumption of , the demand is expected to rise," said Deepak Jasani, head of retail research at . "The uptrend in industrial metal prices is also a supportive factor."

"The positive newsflow from China regarding the stimulus for the real estate sector and the recent uptick in base metal prices led to the uptick in the metal stocks," said Tushar Chaudhari, research analyst at . "Hindalco, and Vedanta are beneficiaries of the up move in metal prices like aluminium, zinc and silver."

Of the 15 stocks in the Nifty Metal index, 11 advanced and 4 declined, on Tuesday. In the past six months, the Nifty Metal Index has jumped 46.94% while the Nifty rose 13.72%.

Jasani said that in the short run, the metals sector is due for a correction, but the sector does not seem to have touched the peak of the current move. "While the correction may be swift, it is not likely to last for too long," said Jasani. "The rebound post the correction is expected to be quicker."

Chaudhari said metal stocks are trading at the higher end of the valuation range of 5-7 times the EV/Ebitda multiples and some correction can't be ruled out. "The near-term outlook for metals is cautious as some cool-off is expected in LME prices which have run up quite a bit in the past two months," said Chaudhari. "Any incremental news from China would determine future prospects."

Jasani said that if the China stimulus doesn't take off or the US rate cut gets postponed, the corrections in metal stocks could be triggered.

"While the domestic demand remains strong, the first two quarters in FY25 are expected to be weaker," added Chaudhari. "If the global steel pricing remains stable then domestic companies are likely to benefit as volume growth is strong in India."