Multiplier effect on metals from infrastructure push; eyes on Budget now

Metals and other core sectors kicked off 2020 on a positive note soon after receiving news of government’s more-than-double capex plan of Rs 1.02 lakh crore over the next five years.

On the market front, positives from domestic macro data like a rise in GST revenue, and India’s factory production rising to a seven-month high brought a broad-based rally. Historically, it has been observed that initial rally early in a New Year augurs well for the full-year ahead.

Icing on the cake was the positive development in the global market where traders are anticipating an improvement in the economy and an uptick in prices of essential commodities like steel after the announcement of US-China phase-one deal to be signed on January 15.

The global economy is likely to be better in 2020. The Chinese economy has stabilized and raw material costs has reduced which will lead to higher demand, an improvement in realisations and EBITDA margin in metals.

Domestically, the steel sector is showing strength, as there is an increase in dispatches and a higher selling price. Primary steelmakers have been increasing prices during the past three months, after hitting the bottom. Also, prices from Gobindgarh Mandi, the largest secondary market for steel products, indicate that the secondary players see prices firming up.

Boosting the steel space was also a positive development on the policy front as India opened up the coal sector completely for commercial mining for all local and global firms after easing restrictions on end-use and prior experience in auctions via an ordinance. This change in Act will help the country reduce its dependence on coal imports and thereby make this essential raw material available to the domestic steel players  allowing them to be more competitive on a global level.

Base metal companies too are also hoping for a demand revival and an improvement in order books. 

Looking ahead, market may wait and understand the roadmap and the position of the government’s balance sheet in the coming Union Budget.

Government too is hopeful of extra income this fiscal from divestment, dividend payouts and spectrum sales. At the same time, the market has strong expectations from the Union Budget. As a result, this positive trend is expected to be maintained as a probability is building up that 2020 Budget will provide an impetus to investments and growth.