Vedanta, Hindustan Zinc, Hindustan Copper To NMDC: Why Do Metal Stocks Rally When Silver Price Rises?

Silver rate in India saw a sharp rebound on Monday, February 9, with prices reclaiming the Rs 3 lakh/kilogram mark amid renewed interest of investors in precious metals. Silver price rally coincided with a sharp jump in metal stocks including Vedanta, Hindustan Zinc, Tata Steel, Hindustan Copper, NMDC, JSW Steel, etc.

Nifty Metal jumped close to 1.53% on Monday during the market closing hours, with Hindustan Zinc, Hindustan Copper, National Aluminium, Tata Steel, Hindalco, APL Apollo Tubes, Vedanta, etc emerging as the top gainers.

Hindustan Copper shares closed 3.3% higher, Hindustan Zinc shares were up 3.1%, National Aluminium Company (NALCO) shares closed 3% higher. Additionally, Tata Steel, Hindalco, APL Apollo Tubes, Adani ENT, Vedanta, etc also saw a sharp surge on Monday.

Why Silver Prices Impact Metal Stocks?

Several factors come into play in fuelling a rally in metal stocks whenever silver prices surge. Companies such as Hindustan Zinc and its parent Vedanta benefit on the revenue front, as Hindustan Zinc is among the leading silver producers. Meanwhile, jewellery players like Thangamayil Jewellery gain an edge by passing on higher input costs, thereby limiting margin pressure.

"In India, Hindustan Zinc remains the most direct beneficiary of rising silver prices, as silver contributes materially to its revenues and profits. Vedanta Ltd benefits indirectly through its stake in Hindustan Zinc, though the impact is diluted by its exposure to aluminium, oil, and other metals. Hindustan Copper has very limited silver by-product exposure, so sensitivity is marginal," explained Darshan Rathod, COO, MULTYFI.

Silver price rally majorly impacts producers and consumers of the precious metals. While companies like Hindustan Zinc and Vedanta benefit from silver rally, gold and jewellery stocks also see a jump whenever precious metals surge.

"Businesses with relatively inelastic demand and strong brand positioning, such as jewellery players like Thangamayil Jewellery, are better placed to pass on higher costs, limiting margin pressure," explained Pankaj Singh, smallcase manager, Founder and Principal Researcher, SmartWealth AI.

However, other metal stocks such as JSW Steel, Tata Steel and NMDC are not directly impacted by a rise in silver prices. Instead, it is the broader base metals rally, which often coincides with a surge in precious metals, that drives momentum in these stocks.

"NMDC, Tata Steel, and JSW Steel are largely unaffected, as their earnings are driven by bulk metals, not precious metals," added Rathod.

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