The Third Eye : Metal losing Sheen

The third eye senses the glow dampening out of the Metal Sector. The metal Sector has been in limelight for last six months or so with the prices rising to all time high.

Does it mean that that the metal sector has peaked out?
Since their respective peaks, metals like Aluminium and Zinc have fallen by more than 13%, Copper down by 8% . Nickel appears to be an exception?
One obvious reason is slowdown in Chinese economy, which is already facing a problem of overproduction.
Aluminium was trading at $1742 per tonne with 27 months futures trading at $1672 on the London metal Exchange on June 2.
Clearly, there is a sign of slowdown in prices of Metals and this is going to affect the bottomlines of the companies in this sector for the coming year.
The FII data shows that they were sellers in Metal stocks and moving to other growth stocks.

So, what does this means to the Investors?
Investment Guru is of view that Investors should avoid buying in the metal stocks at this stage as the metal stocks are bound to go southwards.
A wait and watch approach is recommended for at least a three month time period to assess the impact of slowdown on the share prices.

Which company will perform better?
Investment Guru believes that in the steel space, Investors should watch out for stocks like JVSL which was in news for approval to acquire Euro Coke and Energy Pvt. Ltd., Euro Ikon Iron and Steel Pvt. Ltd. and JSW Power Ltd. through a merger with the company.

This acquisition will bring in positive synergy for the company and will help it outperform other stocks in the steel space. The profit before Tax of the company will go up by Rs. 145 Crores due to this merger.

The combined entity will be available to the Investors at cheaper valuations as compared to other steel stocks.

But wait for the slowdown euphoria to die down so that you can enter the stock at attractive price.

Happy Investing!


Narendra Kumar said...

I have invested in SAIL and Usha Martin.
After looking at your post, I am really terrified.
I bought SAIL at 60 Rs/share
And Usha Martin at Rs.87/share.

So, please tell me if I should hold or sell?


Rajesh Soni said...

Hi Sid
I do not agree with you.
As mentioned in my article, we should wait for some time before enetering the metal stocks.
Morever, I consider JVSL as a better investment as compared to TATA steel. Most of the good news on tata steel counter is already factores in its price while JVSL has yet to unlock its value. Hope this convice you.
All the best !

Rajesh Soni said...

Regarding ssnkumar's comment :
There is no need to panic. If you are a long term investor, you must hold on to these stocks. Metal stocks are cyclical in nature and what I pointed in my article was that it is passing through a bad phase now. But with demand supply equations changing..these stocks will once again perform in long run.

Anonymous said...

How about Sunflag Iron. The company is in specality steel meant for automobile. Also it has started to produce stainless steel as a regular product in its portfolio. The net profit has grown almost 8 times and the CMP is ridiculously low at 14.00

Rajesh Soni said...

Reg. Kaushik's comments..
I have not yet tracked this stock...Will see if I can look at it and get back to the comments sections to reply.
By the way can u tell me the growth rate , EPS, P/E and something about the promoters stake in the company ? It will help me ! Never mind if you can't ..I will try to get.

Anonymous said...

Hi Soni,
Like yr site, quite informative.
I'm a bit lost on JVSL, what does it stands for (full name)! I'm stuck with Bhusan @ 209./thks.