Shining brighter: Nifty Metal extends rally for seventh straight session on rise in metal prices, China stimulus

On Monday, the Nifty Metal index increased by almost 2%, marking its seventh consecutive session of gains, driven by a sharp uptick in global metal prices, particularly following China's intended stimulus aimed at strengthening its economy. Metal stocks were skyrocketing in an otherwise volatile and sluggish market on Monday.

At 12:30 pm, Nifty 50 index and Sensex were down over 1% each to 25,894.70 and 84,602.46 points, respectively. On the other hand, the Nifty Metal index opened at 10,124.10 level and touched a record high of 10,263.65 level in Monday's session.

“Metal index has been in a strong buzz since last week and outperformed, eventually making a new high today. It is up for the 7th straight session, and going ahead, we expect this performance to continue, considering that the space is already up more than 8% for the month. Buying on dip would be preferred, with 10,000 as now a support and 10,800 as resistance,” said Rajesh Bhosale, Equity Technical and Derivative Analyst at Angel One.

Furthermore, as part of broad measures to arrest the economic slowdown and bolster the troubled Chinese real estate market, China's central bank announced on Sunday that it will order banks to cut mortgage rates for current house loans by October 31. This news further sparked a rise in Indian metal stocks.

China's commercial banks have been urged to lower interest rates on current mortgages by at least 30 basis points (bps) below the Loan Prime Rate (LPR), in batches, by the People's Bank of China (PBOC). According to news reports, current mortgage rates are expected to decrease by an average of around 50 basis points.

The surge in Indian metal stocks can also be attributed to the US Fed rate cut. Expectations are increasing that the Reserve Bank of India (RBI) will reduce interest rates this year, in line with the global trend.

SBI Research predicts that the RBI might implement a rate cut by February 2025, potentially influenced by the recent 50 basis point rate decrease by the US Federal Reserve.

India's consumer price index (CPI) inflation rate fell to 3.65% year over year in August 2024, marking a decrease to its lowest level in over five years, as indicated in the report.

Nifty Metal stocks in focus

The leading gainers from the metal pack were up 2-4%, namely NMDC, MOIL, Hindalco, and JSW Steel. According to news reports, three of China's biggest cities—Shanghai, Guangzhou, and Shenzhen—saw a roughly 11% increase in iron ore prices when limits on house purchases were relaxed. This action fits in with Beijing's previous measures to assist the faltering real estate market and is anticipated to improve the demand forecast for iron ore used to make steel worldwide.

Rajesh Bhosale of Angel One highlighted that Tata Steel has outperformed in the recent run, gaining more than 10%. The move came after forming a base on the 200SMA and is now poised to test new highs beyond 180. Traders should maintain a positive bias and use dips as buying opportunities.

Bhosale also stated that JSW Steel, during the recent correction in the metal basket, didn't correct much and witnessed a time-wise consolidation. With the resumption of strength in this space, the stock has shown strong positive traction and is trading in uncharted territory. Expect continuation of upmove possibly towards 1,060 and beyond 1,000 to act as support.

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