This sector gave positive returns in December last 3 years, will history repeat?

Historically, the December month has been largely in favour of Dalal Street bulls, with data for the last 12 years showing that the benchmark Nifty 50 has given positive returns on seven occasions.

But if one were to look at the sectoral performance in December, particularly in the last three years, then there’s just one sector that has given returns consistently for three years in this month.

The metal pack is the only sector to give positive returns in December consecutively for the last three years. The S&P BSE Metal index has gained nearly 14% in December 2020, followed by 6% in 2021, and 3% in 2022.

The index did end in the green in December last three years, but the returns diminished amid a slowdown in the global economy, which dented demand for commodities, particularly in China, the world’s largest producer and consumer of metals.

Whether the index will repeat history this time is something time will tell, overall 2023 has been in favour for the sector, as the sectoral index has given more than 17% returns year-to-date.

In fact on Friday, the index scaled a lifetime high of 24646.89 points.

Among stocks that are part of the BSE Metal index, all barring Vedanta, have given positive returns year-to-date. Seven of them have given double-digit returns of upto 54%. Among steel producers, Steel Authority of India, Tata Steel, and Jindal Steel & Power have given returns to the tune of 13-19% so far in 2023. JSW Steel underperformed its peers, giving about 6% returns.

Among base metal producers, National Aluminium Co was the top performing stock, giving returns of more than 16%. Sector major Hindalco Industries gave 9% returns as the performance was marred by weak earnings growth of the company.

Outlook
As far as the overall outlook for the sector is concerned, it is quite mixed with analysts being cautious on ferrous and non-ferrous producers, as realisations have been weak and volumes are yet to see visible recovery.

“Going ahead, we believe spreads may be the key to watch out as the benefit of higher steel prices QoQ might be offset by higher coking coal prices. However, in case of non-ferrous companies, we expect stable performance,” brokerage ICICI Securities said in its report.

Post the September quarter earnings, consensus has increased target prices for JSW Steel and NMDC sharply, which implied raising of valuation multiples for the two companies. Meanwhile, target prices were lowered for Tata Steel and Jindal Steel & Power.

Meanwhile, HDFC Securities remains cautious and is, therefore, underweight on the metals pack,

(Data inputs from Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)