Metal Stocks Lead the Gains

Mon, 30 May 01:30 pm

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Indian indices are presently trading on a positive note. Sectoral indices are trading on a mixed note with stocks from the IT and metal sectors leading the gains. Power stocks are however trading in the red.

The BSE Sensex is trading up 68 points (up 0.3%) and the NSE Nifty is trading up 16 points (up 0.2%). The BSE Mid Cap index is trading up 0.4% while the BSE Small Cap index is trading up by 0.5%. Gold prices, per 10 grams, are trading at Rs 28,444 levels. Silver price, per kilogram is trading at Rs 38,390 levels. Crude oil is trading at Rs 3,319 per barrel. The rupee is trading at 67.31 to the US$.

Stocks in the steel sector are trading on a mixed note with Maharashtra Seamless and Jindal Saw leading the gains. According to the latest data by global industry body World Steel Association (WSA), India, the world's third largest steel producer, was among the top 10 importers of the alloy last year.

In its latest report the WSA stated that India imported 13.3 million tonnes (MT) of the metal in 2015. This was slightly higher from 13.2 MT of steel imported by China during the same period. WSA data also showed that India exported 7.6 MT of steel in 2015, which was just a fraction of what its neighbor China exported during the same period at 111.6 MT.

WSA forecasted that India's steel demand is expected to grow by 5.4% to 83.8 MT in 2016 on the back of low oil prices and reform momentum. Regarding outlook, it said that economic environment facing steel industry continues to be challenging with China's slowdown impacting globally across a range of indicators.

According to Indian government data, steel imports rose by 25.6% to 11.71 MT during the 2015-16 financial year against 9.32 MT in the year-ago period. India was a net importer of the metal in the last fiscal.

The Indian steel industry has been depressed for a while. Weak global demand, cheap imports and falling prices have dented the financials of the domestic steel producers.

To address these alarming imports, the government has taken some steps in this regard. The flood of imports prompted the government to impose safeguard taxes in September 2015 and set a minimum import price (MIP) in February 2016.

On February 5, 2016, the directorate general of foreign trade imposed a MIP on 173 steel products. The prices range from US$352 per tonne to US$752 per tonne of steel. This move has been labeled as a 'game changer' for steel companies.

However, do these initiatives by the government makes sense? It does for the steel companies. But not for the overall Indian economy as a whole. One of our editions from The 5 Minute WrapUp titled 'Govt Fixing Steel Prices: Is Make in India Just a Slogan?' answers why a MIP can hurt the Indian economy.

Moving on to the news from automobile space. Bajaj Auto is planning to invest Rs 6 billion this fiscal in a bid to capture 25% share in the Indian motorcycle market. The company stated that a major chunk of this investment will be used for launch of new products.

The company is planning to launch an upgrade for the Platina (entry-level model) and a totally new Pulsar at the top-end in the next quarter.

The company is currently strong in the entry level and top-end performance segment of the bike market and is now looking to strengthen its presence in the mid-executive segment.

The company has a market share of 20% in the domestic motorcycle market and is looking at a market share of 24-25% by the end of this fiscal. On the overall sales target, the company is targeting to sell 46 lakh units of two and three wheelers combined this fiscal, up from 39 lakh units in the previous fiscal.

The above targets, along with the planed investments, will aid the company in achieving higher sales and an increased market share going forward.

Bajaj Auto is one of the leading two & three wheeler manufacturers in India. Presently its stock is trading up by 1.4%.