Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Non Ferrous metals stocks: Where are they heading? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jun 16, 2009

    Non Ferrous metals stocks: Where are they heading?

    The Indian stock markets have put behind the worst and have rallied more than 50% in 2009 till date. During this period, various sectors and stocks in particular have outperformed the index by rising anywhere between 100% and 200%! Banking, metals, capital goods, infrastructure and construction are few of the sectors, which have outperformed the benchmark indices. In this article, we will focus on non- ferrous metals like Hindalco and Nalco, which have outperformed the benchmark index by a comfortable margin by logging in gains of 85% and 83% respectively. In this article, we try to determine the reasons for this outperformance.

    Before getting onto the reasons for the stock price rise in Hindalco and Nalco, it must be noted that Nalco is among the lowest cost producers of alumina and aluminium in the world, while Hindalco is among the leading producers of aluminium as well as copper in the country.

    Source: LME Source: LME

    As can be seen from the above charts, both the aluminium and copper prices have strengthened since the beginning of January 2009. While LME prices of aluminium grew by around 10% in last 6 months, the same for copper surged 71% during the period. If one were to closely observe the inventory situations of both the metals at LME, it shows that the inventory of copper has been decreasing, while that of aluminium is standing at multiyear highs. It has been also reported that China is buying these metals in huge quantities to not only meet demand on account of its enormous fiscal package but also to stockpile it for future needs. It must be noted China accounts for more than 25% of world aluminium consumption and about 20% of world copper consumption. The demand for metals is also being supported by the gradual global economic recovery, especially in the emerging markets like India, Russia, and Brazil etc.

    If one were to closely observe the movement of metal stocks, particularly Hindalco and Nalco vis--vis the Sensex during the second and third quarter of FY09, when the world was exposed to the global financial crisis, these stocks were beaten down significantly as compared to Sensex. The reason attributed for the sharp decline in the stock price of Hindalco was on account of the leveraged buyout of Novelis in FY08, while that for Nalco was the falling demand for alumina in the overseas market. With reference to Hindalco investors were concerned about the company's ability to service the debt it took for the acquisition, while for Nalco it was its significant dependence on exports market that hurt its stock price. Moreover, the demand for metals going forward was presumed to be sluggish.

    As a result of these concerns, these stocks were beaten down by more than 80% from their 52 week high price. The markets were pricing these stocks as if no demand for metals was going to exist in the future. It seemed that the growth in demand for the metals from the domestic markets was completely neglected. However, from the risk reward perspective, the stocks did look attractive if one were to take a long term view on these companies. Thus, when sentiments improved and investors once again started looking for risky asset classes, these companies, on account of their strong long term fundamentals came back in the reckoning and witnessed, huge surge in their market values. The fact that LME metal prices started inching northwards also helped matters.

    Where do we go from here? As far as aluminium is concerned, one look at the current inventory and it becomes clear that the rise in Aluminium prices had more to do with the ample liquidity in the system than any improved fundamentals, thus making the rally susceptible. Even for copper, the price may have risen, too much too soon. Hence, do not be surprised if these companies witness a correction in the near future. If it does indeed happen then it could be a good opportunity to invest as the long term fundamentals, both from the metal prices point of view and volume growth point of view still look attractive.



    Equitymaster requests your view! Post a comment on "Non Ferrous metals stocks: Where are they heading?". Click here!


    More Views on News

    Hindalco Industries: Deleveraging Kicks in, One-Offs Hurt the Bottomline (Quarterly Results Update - Detailed)

    Aug 22, 2017

    Hindalco Industries has reported a healthy growth in the topline on the back of Higher volume and realisation for both Aluminium and Copper segments. However, the bottomline declined marginally primarily on the back a provision of Rs 1.04 billion.

    Hindalco: Strong Performance at Operating Level (Quarterly Results Update - Detailed)

    Feb 22, 2017

    Hindalco Industries has reported a 14.5% YoY increase in the topline while the bottomline came at Rs 3.2 billion.

    SAIL: Good Performance at EBITDA Level, Headwinds in the Offing (Quarterly Results Update - Detailed)

    Dec 21, 2016

    SAIL has reported a 21.4% YoY increase in the topline while the bottomline reported a loss of Rs 7.31 billion.

    Tata Steel: Domestic Realisation Disappoints, Loss continues... (Quarterly Results Update - Detailed)

    Dec 19, 2016

    Tata Steel has reported a 0.1% increase in the topline while the bottomline was in red in 2QFY17.

    Hindalco Industries: Strong Operational Performance Boosts Profitability (Quarterly Results Update - Detailed)

    Nov 30, 2016

    Hindalco Industries has reported a 1.1% YoY increase in the topline while the bottomline has accelerated by 255.4% YoY.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 22, 2017 (Close)