The BSE metals index fell almost 7% also due to concerns about the impact of the unfolding crisis in China’s Evergrande, the second largest real estate agent in the country, increasing fears that a slowdown in the sector of housing could affect the demand for raw materials in the world’s largest consumer of metals.
and Jindal Steel & Power shares fell more than 9%, while SAIL, NMDC, JSW Steel, Hindalco Industries and Vedanta fell 5-8%.
“Leading indicators for Chinese steel demand continue to worsen. Weak real estate data, as well as fears of contagion due to debt defaults in the high-yield developer market, set a context for current cuts in steel production. steel, “said a note from ICICI Securities. written by Abhijit Mitra and Mohit Lohia.
“The risk-reward in steel stocks is further affected by the steep decline in iron ore prices,” the note added.
Analysts said one should avoid short-term metal stocks until concerns about Evergrande and the impact of contagion fade.
“In the metals space, if China sneezes, the whole world goes cold. Metal prices go down because a real estate company is possibly going bankrupt, there is great concern,” said AK Prabhakar, head of IDBI Capital Markets research.
“A correction in metals was expected, so we need to be cautious but at lower levels. As for valuation, except for SAIL, nothing is cheap, I would wait at least 15-20% to buy other steel stocks.” said Prabhakar.
The metals index had gained about 148% in the past year through Friday, outperforming Sensex which had gained 56% in the same period.
Chandan Taparia, a derivatives analyst at Motilal expects major steel stocks to correct an additional 5-8%.
“We expect the weakness in metal counters to continue, they are breaking below their short-term moving averages and falling below support trend lines. We expect more 5-8% weakness in counters such as Tata Steel, SAIL, NALCO and Jindal Steel “. Taparia said.