Metal Stocks Are The Cheapest In More Than Five Years
The Nifty Metal Index trades at a 32 percent discount to its five-year average price-to-earnings multiple of 11.3.
Metals stocks are the cheapest in more than five years as commodity prices fall.
The Nifty Metal Index trades at 7.7 times its estimated earnings for FY19, according to Bloomberg data. This implies a discount of nearly 32 percent to its five-year average price-to-earnings multiple of 11.3.
The gauge is also one of the biggest losers among sectors, down more than 21 percent so far this year. That’s because of a decline in share prices of index heavyweights such as Tata Steel Ltd., Vedanta Ltd. and Hindalco Industries Ltd. Shares of Tata Steel, which has a weight of 18.44 percent on the index, dropped nearly 25 percent this year. Vedanta and Hindalco with 17.31 percent and 14.19 percent weight slumped 42 percent and 21 percent, respectively, during the period.
A weakness in Chinese steel rebar price—down more than 18 percent from its peak in August—due to a slowdown in demand, coupled with rising trade war concerns, hurt commodity prices, according to Rakesh Arora, managing partner at Go India Advisors. “Increased probability of the U.S. slapping higher tariffs on Chinese goods and a supply glut in domestic market may result in a prolonged decline in prices.”