Metal stocks outscore IT with scorching gains

BSE Metal index surged 20% in the past month against a 5% decline in the Sensex, besides edging ahead of the IT index which rose 5% during the same period.

Tata SteelBSE 1.97 % has emerged as the top gainer among metal stocks, rising 40% in the past month as its European operations performed better. "Europe is showing signs of recovery while rupee depreciation is aiding to protect margins in slowing India, helping put a bottom to Tata Steel's earnings," said a recent note by Macquarie. Indian stocks have, in fact, even outpaced their global rivals during the past month.

Stock prices of Tata Steel's global rivals Posco, Nippon and JFE Holding have fallen between 2% and 5% in this period. HindalcoBSE 3.26 % gained 22% in the past month, outperforming its rivals BHP Billiton (gained 2.5%) and Alcoa (fell by 3%).

China's steel production also picked up in July to 6.2%, boosting global crude steel production for the month by 2.7% to 132 million tonnes. With rupee depreciating by 20% against the dollar in the past three months, the fear of higher imports has subsided as domestic prices are at a discount to imported landed prices.

"We see an improvement in the global economy with PMI indices of euro zone showing expansion along with other major economies," said Ashish Kejriwal, analyst at Elara Capital. "The improvement in demand helps steel producers to pass on the rise in raw material prices and maintain gross margins."

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