China’s National Development and Reform Commission (NDRC) disappointed global investors on October 8 by withholding major new stimulus measures, despite expressing confidence in achieving the country’s economic growth target for the year. The state planner’s announcement, which outlined a roadmap for economic recovery but lacked fresh large-scale stimulus initiatives, triggered a sell-off in metal stocks, both in China and India.

Indian metal companies, including NMDC, NALCO, Tata Steel, and JSW Steel, saw their shares drop between 3-5 percent in response to the NDRC’s update. The lack of substantial new stimulus initiatives from China dashed investor hopes, as the country’s recent fiscal measures had raised expectations for further economic support. Additionally, a sharp decline in SGX iron ore prices further exacerbated the negative sentiment, pushing down the stock prices of key steel manufacturers.

The highly anticipated press briefing by China’s NDRC left investors underwhelmed, despite the commission’s confidence in hitting its economic growth target of around 5 percent for 2024. While previous actions had fueled expectations of additional fiscal stimulus worth trillions of yuan, doubts remain about the country’s ability to sustain long-term growth without more aggressive intervention.

Investors had been looking for significant stimulus measures to restore confidence in the face of sluggish consumer spending, a prolonged property sector downturn, and rising trade tensions. These challenges are pressuring new growth areas, such as electric vehicle exports, and raising concerns about whether China can maintain its status as a global growth engine.

China, the world’s largest importer of metals, plays a crucial role in driving global demand for commodities like iron ore and steel. The combination of internal economic challenges and the NDRC’s reluctance to introduce major stimulus is casting doubt on the strength of China’s metal consumption in the near future. As a result, metal companies, particularly those that rely on exports to China, are feeling the strain of the slowdown.

The lack of decisive action by China’s policymakers may signal that the economic revival investors were hoping for could take longer to materialize, which could lead to continued weak demand for metals. This uncertainty is further souring market sentiment, not only in China but also in other economies tied to the global metal supply chain, including India.

While China’s NDRC has expressed confidence in meeting its 5 percent economic growth target for the year, the absence of major stimulus measures is casting doubt on the country’s ability to drive a robust recovery. For metal companies, both in China and abroad, the lack of new economic fuel is creating uncertainty around future demand, leading to significant market losses. Investors will be closely watching for any further developments that could indicate whether China’s economic rebound will gain traction or continue to stall, keeping pressure on global metal markets.

The upcoming week promises to be a pivotal one for Indian equity markets as the highly anticipated Union Budget 2024 takes center stage. Investor sentiment has been buoyant, driven by expectations of pro-growth policies and strong corporate earnings. However, the market is expected to witness increased volatility as investors digest the budget announcements and quarterly results.

Key market drivers

• Union Budget 2024: The government’s fiscal policy will be closely watched for its impact on various sectors and the overall economy.
• Q1FY25 earnings: A slew of major companies will announce their quarterly results, influencing sectoral trends.
  Global Cues: Global economic indicators, especially US GDP and inflation data, will impact investor sentiment.
• FII and DII activity: The flow of foreign and domestic funds will continue to influence market direction.
  Technical Indicators: Market analysts suggest caution due to overbought conditions and potential for a correction.

Sectors in focus

• IT: The sector has been a standout performer, driven by strong Q1 earnings and expectations of continued growth.
• FMCG: This defensive sector has shown resilience and is expected to benefit from rural consumption revival.
• Banking and Financials: The sector’s performance will hinge on the budget’s measures related to credit growth and asset quality.
• Metals and Energy: These cyclical sectors may witness volatility due to global commodity price movements.

While the overall market sentiment remains positive, however it is advisable to adopt a cautious approach due to the potential for increased volatility. Diversification and a long-term investment horizon are crucial for managing risk.

The demand for non-ferrous metals, including copper and aluminium, is projected to remain robust at approximately 10% in the current fiscal year (FY2025), significantly exceeding the anticipated global demand growth of around 2%, according to a report by ratings agency ICRA.

The domestic demand for non-ferrous metals is expected to rise by 10% in FY2025. This growth rate surpasses the global demand growth forecast of just 2%.

ICRA rating agency highlighted several factors contributing to this positive outlook:

Eased coal auction premiums:

The domestic e-auction premiums on coal have decreased to around 50% in April 2024, down from the peak levels of 150% in the same period last year.

Firm metal prices and benign input costs:

The ratings agency anticipates that stable input costs and strong metal prices will enhance the profitability of domestic non-ferrous metal companies.

Financial projections for FY2025

• Operating Margins: Expected to increase to around 23%, up from approximately 17% in FY2024.
• Credit Metrics: Total Debt/OPBDITA is projected to improve to 1.8 times in FY2025, from 2.0 times in FY2024.
• Interest Cover is expected to rise to 6.0 times, up from 4.5 times in FY2024.

Top 5 non-ferrous metal stock according to market capitalization

• Hindustan Zinc
• Hindalco Industries
• National Aluminium
• Hindustan Copper
• Gravita India

Senior Vice-President and Group Head of Corporate Sector Ratings at ICRA, stated, “With input costs remaining largely under check and healthy growth in realisation, the operating margins of domestic entities are estimated to rise considerably. The credit metrics are also expected to improve, reflecting the sector’s strong performance.”

The domestic market for non-ferrous metals is poised for significant growth in FY2025, driven by robust demand, controlled input costs, and firm metal prices. This favorable environment is expected to boost profitability and improve financial metrics for domestic non-ferrous metal entities, making it a promising year for the sector.