India`s metals, mining stocks hold bright future despite premium to peers
Most Indian metals and mining stocks are trading at a large premium to global peers due to strong, sustained domestic demand, a report showed on Thursday.
HSBC Global Research said in the report that the sector has" a good year, with more to come," due to rich resource reserves and supportive regulatory policies.
"This is the result of strong, sustainable demand driven by urbanisation and infrastructure spending; large iron ore, coal, bauxite, and zinc reserves which make Indian companies the lowest cost producers globally; and supportive regulatory policies that provide protection from low-cost imports, especially from China," the report maintained.
The research firm prefers aluminium due to China’s capacity cap and steady global demand. "We also have a positive view on silver and expect prices to remain firm, given increasing investor demand," the statement said.
India is the world's fastest-growing steel market, but we see steel stocks as more cyclical, given the seasonality of demand and lower Chinese steel production, it added.
HSBC initiated coverage with 'Buy' ratings on several top Indian aluminium stocks, expecting global headwinds on them to fade away.
The report cited positive factors to support premium valuation, such as Indian metals and mining stocks having re-rated in line with the broader markets.
Balance sheets are relatively strong as companies have deleveraged, and the long-term outlook is bright as the metals intensity of GDP growth remains elevated.
HSBC, however, warned of downside risks from a slowdown in China or the US, a sharp pullback in global growth and a stronger US dollar that could create cash flow pressures for the companies.
Indian steel has relatively lower risks as a result of the government's 12 per cent safeguard duty on imports, it added.
