Metal stocks have recovered in the past 1 month after a weak last 1 year. In the last 1 month, the Nifty Metal index has gained nearly 18 percent after losing around 4 percent in the last 1 year. In comparison, the benchmark Nifty50 index has risen 8 percent in the past 1 month as well as the last 1 year.
The recent rise in the metal index comes on the back of better-than-expected June quarter earnings and the decline in commodity prices after a huge surge since the Russia-Ukraine crisis began in February.
In the metal index, all stocks except 1 gave positive returns in the last 1 month. 8 out of 14 stocks gave double-digit returns in the last 1 month, rising over 10 percent each. Hindustan Copper rose the most, up over 23 percent followed by Tata Steel, up 21 percent in the last 1 month on the back of strong Q1 results.
Meanwhile, Adani Enterprises, APL Apollo Tubes, JSW Steel, Hindalco, Vedanta, JSPL and Coal India advanced between 13-20 percent in this time. SAIL, which has lost over 40 percent in the last 1 year also gained 9 percent in the last 1 month.
However, Welspun Corp was the only stock that fell 4 percent in the last 1 month after rising 62 percent in the last 1 year and 18 percent in 2022 YTD.
Metal stocks have been falling led by the rise in commodity prices due to weak global cues. Further, many metal stocks have also been hit by earnings downgrades after the center raised export taxes and duties on steel, iron ore, and petroleum products. Brokerage house Kotak Institutional Equities believes these recent government measures to garner additional revenue will negatively impact the metal sector going ahead.
Meanwhile, Sunil Damania of MarketsMojo also believes that as far as metals are concerned, they are a function of the global economy's health but the recent IMF cutdowns in global growth indicate that the demand for the metal will remain subdued. So, despite metals falling substantially, Damania doesn't see their valuations as attractive and would prefer to avoid them.
While most metal firms did perform better than expectations, the profit of steel firms mainly continued to decline in the June quarter.
Tata Steel's net profit declined 13 percent YoY to ₹7,765 crore for the quarter ended June 2022 versus ₹8,907 crore recorded during the same quarter last year. On a sequential basis, the net profit fell 20.4 percent from ₹9,756 crore in the January–March quarter.
Its consolidated revenue, however, rose 18.6 percent to ₹63,430 crore versus ₹53,465 crore in the year-ago period. However, sequentially the revenue declined 8.5 percent.
Meanwhile, JSPL reported a net profit of ₹1,970 crore in the first quarter of the fiscal year 2022-23, down 22 percent lower from ₹2,543 crore in the year-ago period. Its revenue during Q1 FY23 rose 23 percent to ₹13,045.4 crore, as against ₹10,609.5 crore posted in the corresponding quarter of last fiscal.
Axis has a cautious view on the steel sector, as currently, the demand drivers are weak, and the China stimulus and actual bond issuance need to be monitored. It expects steel players' margins to take a further hit in Q2FY23 as the spot steel prices are down by 14 percent from the Q1FY23 average, partially offset by lower coking coal prices. However, it sees steel margins bottoming out in Q2FY23 on hopes of some recovery in Chinese demand with improving the Covid situation and the possible impact of stimulus measures. In the metal sector, the brokerage prefers APL Apollo Tubes and Coal India.
Meanwhile, non-steel firm Adani Enterprises performed exceptionally well in the quarter.
Adani Enterprises reported a 73 percent YoY jump in its June quarter profit after tax to ₹469 crore while the consolidated revenue surged 224.69 percent YoY to ₹40,844 crore.
Meanwhile, Welspun Corp declined after it posted a 96 percent drop in its consolidated net profit to ₹4 crore in the June quarter. Its consolidated net profit stood at ₹94 crore in the year-ago period, according to a regulatory filing. During the quarter, total revenue came in at ₹1322 crore down 12 percent from ₹1510 crore in the corresponding previous quarter.