What Are Metal Stocks?
As the name suggests, metals stocks constitute all companies that deal in metals like steel, aluminium, zinc, copper, etc. Out of the many metal stocks listed on two major stock exchanges of India - the National Stock Exchange and Bombay Stock Exchange, there are 15 noteworthy stocks. Together these 15 metal stocks make up the Nifty Metal Index. The Nifty Metal Index aims to indicate and summarize the performance of the metals sector in general. This index also includes mining stocks.
The nifty metal index represents most of the total market capitalization in the metal industry. Thus, it is comprehensive of the behaviour of the metals industry. The index can be used to benchmark, i.e., compare the performance of an individual stock to the index as a whole. As of 28 March 2022, the index was valued at 6558.40 points.
Nifty Metal Index uses the Free Float method for arriving at market capitalization. A free float factor is multiplied by the actual market capital to derive free-float market capital. Let's say a company has a free float factor of 80%. It means that 80% shares of the company are in the hands of the public. The promoters of the company own the remaining 20%.
Future of Metal Stocks
After a relative cooling of the pandemic, the world is in recovery mode economically. Hence, demand for commodities, especially steel and iron, has increased. On the supply side, the time frame of the next few months is a good opportunity for Indian players to gain market share internationally. China, known for "dumping" its additional steel production onto different countries, has cut down on production.
Due to dumping, many countries, including Vietnam, have recently imposed anti-dumping duties on China. China's national strategy of achieving carbon neutrality by 2060 is to cut down on additional and unnecessary production. Also, the war between Russia and Ukraine has caused many countries to impose sanctions on major Russian players, thereby limiting the steel supply.
Thus, Indian players have the opportunity to gain ground globally. This perspective was from a fundamental analysis of metal sector stocks. But metal sector stocks have proved their mettle with their past performance. If we look at the past 1-year performance ending February 2022 of Nifty sector indices, Nifty metal has given the highest return of more than 50%, followed by Nifty IT at 40% and Nifty Consumer at approximately 30%.
Best Metal Sector Stocks for Long Term
Here's the metal sector share list. These 15 stocks constitute the Nifty Metals index.
1. Tata Steel Ltd.
2. Hindalco Industries Ltd.
3. JSW Steel Ltd.
4. Vedanta Ltd.
5. Adani Enterprises Ltd.
6. Coal India Ltd.
7. Jindal Steel & Power Ltd.
8. NMDC Ltd.
9. Steel Authority of India Ltd.
10. APL Apollo Tubes Ltd.
11. Hindustan Zinc Ltd.
12. Ratnamani Metals and Tubes Ltd.
13. MOIL Ltd.
14. National Aluminum Company Ltd.
15. Welspun Corp Ltd.
Companies like Tata Steel, SAIL, Adani Enterprises, and Vedanta are among the best buys in this sector. Analysts have found that Tata Steel and SAIL have access to cheaper iron ore resources. So, while costs are capped for them, they can profit from higher steel prices in the current market. Tata Steel is a frequent Index mover of the Nifty metal index. Therefore, it provides good liquidity and entry points to new investors.
On 17 March 2022, Tata Steel opened at an increase of 0.90% from the previous day's close. Recently, Credit Suisse upgraded the rating of Vedanta. Last year, the stock surged around 250%, while Adani Enterprises rose over 400%. All metal stocks have generally shown an upward moving trend in the past year. An increase in base metal prices internationally contributed to the growth of metal stocks in the Indian markets.
Is It Worth Investing in Metal Stocks?
As previously discussed, China, one of the biggest producers, has cut down its steel production. The supply of steel in the international market is relatively low compared to an uptick in demand recently, which can be attributed to the economic recovery post-pandemic. Since the pandemic, many countries have upped their infrastructure spending to put the economy back on track. Due to this trend, the production of Indian metal companies was absorbed by the international market.
Steel companies utilized the increased profitability to pay off their huge debts and clear their balance sheets. Domestically, the metal sector, especially steel, has been receiving good input from the government, too, in terms of its long-term vision and policies. In its goal of a $5 trillion economy by 2024, the government may consider capital investment in infrastructure sectors like housing, electrification, piped water, etc. Steelmakers can benefit from the new demand thus generated.
With good cash flow generations, the dividend yield of many metal sector shares makes it a compelling buy. Currently, analysts at the forefront are talking about the cyclical nature of metal stocks and which stage in the industry's cycle. But that is important for investors who want to benefit from the short-term volatility of these stocks. Investors with a long-term view and medium risk appetite can consider putting their hands into metal sector shares.