Hindustan Zinc Leads Meltdown In Metals As Sliding Silver, Fed Fears Crash Party

Mumbai, May 15:Metal stocks came under sharp selling pressure on Friday after profit-booking across the sector in the wakeof a strong rally.

Shares of Vedanta, Hindustan Zinc, National Aluminium Company and Hindustan Copper declined sharply, dragging the Nifty Metal index 1.4% lower after the sector had rallied strongly last day.

Hindustan Zinc emerged as the biggest loser in the pack, while Vedanta and Hindustan Copper also saw steep declines as investors locked in gains. Hindustan Zinc, which gets a chunk of its earnings from silver, fell over four per cent at Rs640.40, as the white metal reversed strong gains from earlier in the week falling almost 7% on Friday as investors rotated away from precious metals amid expectations of rate hike from US Federal Reserve.

Vedanta and Hindustan Copper fell 2.7% and nearly 5% respectively. To be sure, Vedanta, which is the parent company for Hindustan Zinc, had risen for four sessions hitting a one year high yesterday before declining today.

Hindustan Zinc led the decline on the metals index. Source: NSE

Expectations of a Fed rate hike means a stronger dollar which typically weighs on commodity prices, by making them more expensive for holders of other currencies. This could be one of the reasons behind the meltdown in metals besides profit booking.

Also the Indian government raising import duties on gold and silver to 15% from 6% earlier this week in an effort to conserve foreign exchange reserves had initially boosted sentiment for domestic metal producers and silver-linked companies, particularly Hindustan Zinc, which is among India’s largest silver producers.

The latest correction was also intensified by the strong run-up in metal stocks over the past few sessions, which left valuations stretched in parts of the sector. For example, yesterday, SAIL had gone down after a blistering 14% rally the day before caused by a short squeeze — where aggressive bearish bets are forced to close out as prices rise against them, creating a feedback loop of additional buying. Today it is down again 2.28%.

SAIL continued its slide after a blistering rally driven by speculative trade. Source: NSE

Adani Enterprises managed to buck the trend, paring gains to trade 0.53% higher, as optimism from reports that U.S. authorities were moving closer to dropping criminal fraud charges against billionaire chairman Gautam Adani countered the negativity on the metals index.

Silver exchange-traded funds also witnessed heavy selling pressure on Friday after posting outsized gains over the previous two sessions. Market participants said the decline in ETFs mirrored the sharp correction in global silver prices and reflected broad-based profit-booking across bullion-linked assets. Even Tata gold ETF came under pressure.

Despite the near-term correction, the broader outlook for metal stocks remains tied to global commodity trends, China’s demand outlook and the trajectory of U.S. interest rates. The sector had been among the best-performing pockets of the market in recent months amid hopes of a global metals supercycle and improving domestic demand.

However, elevated volatility in commodity prices and uncertainty around Federal Reserve policy have made the sector vulnerable to sharp swings in sentiment.

Source:

• https://www.nseindia.com/get-quote/equity/HINDZINC/Hindustan-Zinc-Limited,
• https://www.nseindia.com/get-quote/equity/SAIL/Steel-Authority-of-India-Limited