Nifty Metal Index Jumps To Highest Since October 2018
Credit Suisse has initiated coverage on NMDC with an ‘outperform’ rating.
India’s Nifty Metal Index jumped to its highest in 28 months on a surge in commodity prices and a recovery in demand as countries emerge from the pandemic.
Copper prices on the London Metal Exchange rose to their highest since 2012, extending last week’s 5.3% gain. That also prompted a rally in manufacturers across Asia-Pacific, with stocks in Japan and South Korea rising between 10% and 30%.
Besides, the world’s biggest miner, BHP Group, boosted its outlook for the global economy, aiding iron ore and steel stocks. This comes as talks of a burgeoning commodities’ boom gather pace with JPMorgan Chase & Co saying a new supercycle may have begun. In December, Goldman Sachs had indicated a commodities supercycle, on the back of rising global liquidity, weaker dollar and decarbonisation push.
“A long-term boom across the commodities complex appears likely with Wall Street betting on a strong economic recovery from the pandemic and hedging against inflation,” JPMorgan said in a note. “Prices may jump as an unintended consequence of the fight against climate change threatens to constrain oil supplies while boosting demand for metals needed to build renewable energy infrastructure.”
Edelweiss sees progressive demand growth with ferrous companies reporting record earnings. “While prices might have plateaued, the moderate slope of decline will ensure debt reduction achieved by most companies is structural and value accretive,” it said in a separate note. Chinese policies remaining largely accommodative after the New Year, according to the research firm, will be an additional tailwind for the sector.
The Nifty Metal index gained as much as 4.2% as of 11:30 a.m. to its highest since October 2018. All the 15 stocks on the index are trading with gains.
India Focus
Credit Suisse has initiated coverage on NMDC Ltd. with an ‘outperform’ rating and a price target of Rs 162 apiece, implying a potential upside of 45% from the current levels.
“We expect NMDC to maintain elevated Ebitda in the coming years, driven by higher volumes on better visibility from Donimalai resumption and improving pricing power,” the research firm said in its note.
With that, along with finalisation of higher royalty rates and demerger of a steel plant, Credit Suisse said risks are priced in at current levels. “Higher volumes in the years to come will cushion the impact of royalty rates to an extent,” it said. “Also, with the announcement of the demerger, visibility for value unlocking of the steel plant has significantly improved.”