Metals Stocks Outlook: Rally may fizzle out next week on weak cues

 29 Jul 2022

Next week the market will weigh on the weak earnings performance of metal sector stocks in the June quarter. This week two large metal sector companies, Tata Steel Ltd and Vedanta Ltd, reported their financial results for Apr-Jun with both revealing a fall in operating margin.

The metal stocks traders are also getting tired of statements of Chinese push for economic revival leading to rebounce real estate projects and ensuing demand for base metals.

“There is nothing on the ground that corroborates the claim,” said a metals analyst with a leading brokerage.

This week, metal stocks moved higher strongly on clarity from the Federal Reserve not pursuing an aggressive rate hike trajectory due to a contraction in US economy for a second quarter. The Nifty Metal index ended the week 7.7% higher.

But the effect of the slight shift in Federal Reserve’s stance may be short lived going forward as fundamentals will come back to haunt.

The steel stocks may be under pressure due to expectations of the companies facing operating margin contraction in the current quarter as well.

This week, Tata Steel announced its results. The company’s consolidated net profit in Apr-Jun fell 12.9% on the year on the back of a 7% fall in operating profit.

Tata Steel’s executive director and chief financial officer Koushik Chatterjee said that there was a sharp rise in input costs especially coking coal and gas prices in Europe.