It takes one full year to get an interest of 7.5% on bank deposits in India. But, investors in metal stocks, who invested about a month back have gained 4 times more returns in just 2 weeks.
Take the case of aluminum major Hindalco. The shares of Hindalco has rallied from Rs 67 on Sept 28 to the current price of Rs 88, giving a whopping return of 30%.
Vedanta has jumped from Rs 83 to Rs 108, again a returns of near 30%.
How metal stocks have fared in last 2 weeks?
|Price on Oct 1||Price on Oct 15|
|Vedanta||Rs 83||Rs 109|
|Hindalco||Rs 70||Rs 89|
|Tata Steel||Rs 215||Rs 255|
|Jindal Steel||Rs 61||Rs 75|
|NMDC||Rs 92||Rs 100.75|
|Coal India||Rs 328||Rs 341|
Is there more steam in metal stocks?
The sharp rally in metal stocks was clearly a case of value buying at lower levels. In fact, metal stocks along with Tata Motors were the biggest gainers in the Sensex in the last one week.
The other reason why metal stocks have rallied is on hopes that growth in the Indian economy would lead to good demand in the coming years.
Most other sectors, including banking and IT have not participated in the recent rally, which pushed the Sensex past the 27,000 points mark.
The question now is whether there is more steam left in these stocks. Metal stocks may stabilize at the current levels and for a further rally to take place, data should support. International prices of metals should first be going up or Chinese data should be robust.
Metal stocks have a great correlation with data from China, because it is amongst the biggest consumers of metals. If data from China is encouraging metal stocks tend to rally.
Some metal and mining stocks have great value in themselves. For example, NMDC is an excellent bet, because the company's dividend yield itself works out more than bank deposit interest rates. Read more on how NMDC shares can give you higher returns than bank deposits.
The company is a debt free cash rish company with a solid track record of paying dividends.
All in all, there may be another 5-10 per cent upside in metal stocks, but, to expect a stupendous rally is ruled out.