Metal Stocks Continue To Outperform, Nifty Metal Index Hits Record High; Hindalco, JSW Steel Support

On Monday, the Nifty Metal index surged nearly 2%, marking its seventh consecutive session of gains, driven by a sharp uptick in global metal prices. This bullish trend comes in the wake of China's planned stimulus aimed at revitalizing its struggling economy, particularly the troubled real estate sector.

While the Nifty 50 index and the Sensex both fell over 1% each, the Nifty Metal index opened at 10,124.10 and reached a record high of 10,263.65 during the session.

China's central bank announced a measure to boost its troubled real estate market, instructing banks to reduce mortgage rates for current home loans by October 31. This directive is part of broader efforts to stimulate economic growth as the nation grapples with a slowdown. Under this initiative, China's commercial banks have been urged to lower interest rates on existing mortgages by at least 30 basis points (bps) below the Loan Prime Rate (LPR), with expectations that current mortgage rates could decrease by an average of around 50 basis points.

These developments have had a positive spillover effect on Indian metal stocks, reflecting investor optimism about increased demand for iron ore and other metals. As three of China's largest cities-Shanghai, Guangzhou, and Shenzhen-eased limits on home purchases, iron ore prices saw a boost, climbing approximately 11%. This action aligns with Beijing's previous strategies to support its faltering real estate market and is expected to enhance the demand outlook for iron ore.

The rally in metal stocks is also fueled by expectations of an interest rate cut from the US Federal Reserve, further increasing speculation that the Reserve Bank of India (RBI) may follow suit. According to SBI Research, the RBI is likely to implement a rate cut by February 2025, which could be influenced by the recent 50 basis point reduction by the US Federal Reserve.

Supporting this outlook, India's consumer price index (CPI) inflation rate fell to 3.65% year-over-year in August 2024, marking the lowest level in over five years. This decrease in inflation bolsters the argument for a potential interest rate reduction by the RBI, which could enhance liquidity in the market and support growth across various sectors, including metals.

Leading the charge within the Nifty Metal index, stocks such as NMDC, MOIL, Hindalco, and JSW Steel posted impressive gains ranging from 2% to 4%. These companies are positioned to benefit from the anticipated uptick in demand for metal products, spurred by China's stimulus and the easing of regulations in its property market.

As investors continue to monitor global market trends and economic indicators, the Nifty Metal index remains a focal point for those looking to capitalize on the potential recovery in demand for metals.