2023 in Review: Nifty Metal gains for 4th straight year; two stocks turn multibaggers, highest in any sector

The Nifty Metal index has given positive returns for the fourth straight year in 2023, rising over 15 percent in this calendar year. However, it has underperformed the benchmark indices with Nifty jumping almost 19 percent this year so far.

Meanwhile, the index gave record returns in the previous years. In 2022, it rallied 22 percent after a 70 percent surge in 2021 and a 16 percent rise in 2020. However, in 2019 and 2018, the index gave negative returns.

Even though the metal index hasn’t performed as well as in 2022 or 2021, the share prices of most metal companies in both ferrous and nonferrous space have continued to rise with some uptick seen in steel and base metal prices during the last few months.

Following the overall positive market sentiment, the index hit its new record high of 7799.05 this week on December 19, 2023. It has now jumped 50 percent from its 52-week low of 5,209.35, hit on February 28, 2023.

In 2023 YTD, the index has given positive returns in 8 months and negative in 4 so far. It added almost 10 percent in December so far after around 9 percent gain in November. However, the index shed nearly 6 percent in October.

Constituents

Even though the metal index is not the best-performing index this year, two of its constituents have more than doubled investor wealth, which is the most in any sectoral index in 2023 YTD.

Jindal Stainless (JSL) has soared the most, over 130 percent, followed by Welspun Corp, which rallied 124 percent in 2023 YTD.

The surge in JSL comes on the back of exceptional earnings performance. In the September quarter, the company’s net profit rose 120 percent to ₹764 crore against a net profit of ₹347 crore in the September 2022 quarter. 

Its total revenue came in at ₹9,797 crore in Q2, up 12 percent against ₹8,751 crore in the corresponding period of the preceding fiscal. Meanwhile, its EBITDA climbed 80 percent to ₹1,231 crore in the second quarter of this fiscal over ₹685 crore in the corresponding period in the previous fiscal. Net debt in the quarter came at ₹2,149 crore and the net debt-to-equity ratio was maintained at 0.2, which is one of the best in the metal segment, said the company.

Meanwhile, Welspun Corp also peaked on the back of the company’s strong Q2 performance and future growth plans.

The company posted a consolidated net profit of ₹386.59 crore for the quarter ended September 2023 as against a net loss of ₹63.18 crore in the corresponding quarter a year ago. Total income grew almost 2-fold to ₹4,161.41 crore from ₹2,140.86 crore. Meanwhile, its associate company East Pipes Integrated Company for Industry (EPIC) signed a contract with Saudi Aramco worth about ₹1,000 crore for the manufacturing and supply of large-diameter steel pipes. Further, in a recent exchange filing, the company said as a part of its ESG journey it entered into an arrangement for the supply of renewable energy under Group Captive Structure with Mounting Renewable Power Limited (MRPL), a subsidiary of Welspun New Energy.

Apart from these 2 multibaggers, 10 Nifty Metal stocks gave double-digit returns while 3 were in the red.

Hind Copper advanced over 90 percent, followed by Ratnamani Metals, up over 75 percent and NMDC, up 59 percent. Meanwhile, APL Apollo Tubes, NALCO, SAIL, Jindal Steel, Hindalco, Tata Steel, and JSW Steel rose between 10 percent and 50 percent each.

However, Adani Enterprises lost the most, almost 24 percent, followed by Vedanta and Hind Zinc, down 16 percent and 3 percent, respectively.

2024 outlook

Going ahead, analysts expect the volatility to continue in the metal space and see selective stocks performing better than the rest.

Kotak Institutional Equities favors investments in ferrous stocks, particularly those related to steel and iron ore, over base metals like aluminum and zinc producers. This preference is driven by an optimistic growth outlook and the potential for increased profit margins, especially in light of negative spreads in China. 

It recommends buying JSPL, TATA, and NMDC, while selling SAIL. This advice is based on the perceived market conditions and expectations for growth and profitability in the ferrous sector. Investors are advised to conduct their own research and consider their risk tolerance before making any investment decisions.

“During the third quarter of fiscal year 2024 (3QFY24), steel prices experienced a downtrend, indicating that steel prices in 3QFY24 are expected to remain stable to marginally higher sequentially. Despite this, the cost of raw materials involved in steel production, such as iron ore and coking coal, is projected to increase sequentially in 3QFY24, which would likely result in flat quarter-on-quarter (qoq) margins. The combination of lower exit prices in 3QFY24 and elevated raw material costs factoring in the inventory lag is anticipated to exert downward pressure on spreads in the fourth quarter of fiscal year 2024 (4QFY24). 

Despite strong volumes driven by higher exports to the European Union (EU) and robust domestic demand, the outlook is shadowed by the prospect of weaker steel spreads in the near term. This suggests that while the steel industry may experience solid demand, the impact of reduced spreads could pose challenges to profitability in the coming months,” it explained.

Meanwhile, analysts at HSBC Global Research said that outlook for metals remains clouded by China property concerns and macro uncertainty in the rest of the world.

Elara also cautioned that till international metal prices see a significant uptick, domestic steel prices may also see limited upside. For base metal prices, the supply-demand scenario remains unfavorable.

Furthermore, brokerage house Motilal Oswal Financial Services informed, “Our channel checks confirm that vendor-level prices have remained slightly muted and are expected to remain range-bound in the near term.”

According to the brokerage, domestic prices are presently trading at a premium compared to international prices. Despite this, MOFSL anticipates a positive outlook for the steel market due to increased demand from various sectors, including automobiles, infrastructure, construction, and consumer durables. This expected boost in demand is projected to provide support to both overall demand and prices in the domestic steel market.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.

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Published: 20 Dec 2023, 02:24 PM IST