While a climbing dollar index, prospects for interest rate cuts next year, and China's economic stimulus augur well for metals, Rakesh Arora, Founder of GoIndiaStocks.com, cautions that there may be too much optimism and market might be getting ahead of itself in this area.
Investors are ignoring two important factors: the expensive valuations and demand conditions for metals with companies suffering inventory pile ups and pressure on sales.
The Nifty Metal Index has clocked gains of nearly 25% in the last six months.
In the near term, Arora anticipates some pullback in the space.
This applies even to public sector metal companies that have recently played valuation catch-up with their private counterparts.
On specific stocks within the sector, he believes the worst may be over for Anil Agarwal-owned Vedanta.
There is a lot of news on the company; about its progress in managing bond repayments, its comprehensive plan to address upcoming payments next year, and also the restructuring. All this will likely provide some room for an upside in the stock, he said.
On December 14, Vedanta Resources Ltd (VRL), the UK-headquartered parent company of Vedanta Ltd, said that it has secured $1.25 billion from private credit lenders for debt refinancing and a new credit facility.
VRL also said that it has started talks with bond holders to extend the debt maturity profile of the company. It is seeking certain waivers to allow the extension of maturities.
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The company has declared a second interim dividend for the year of ₹11 per share. In financial year 2023, the mining giant gave dividends on five occasions totaling ₹101.50.
Vedanta shares have declined 17% year-to-date after factoring in the near 10% gains over the last month.
For the entire interview, watch the accompanying video
(Edited by : Shweta Mungre)
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