As China initiates rate cuts and stimulus measures to bolster its slowing economy, Indian metal stocks are expected to benefit from a potential demand-driven upcycle, according to CLSA. China, a major player in global commodity markets, lowered its reserve requirement ratio (RRR) by 50 basis points and reduced its 7-day reverse repo rate from 1.7% to 1.5%, signaling efforts to stimulate growth and demand.
Key takeaways from China’s rate cuts:
- Reserve Requirement Ratio (RRR) lowered by 50 basis points, increasing liquidity in the banking system.
- 7-day Reverse Repo Rate cut from 1.7% to 1.5%, further reducing borrowing costs for businesses.
These actions are part of broader efforts by the Chinese government to stabilize its economy, which has been grappling with a slowdown in recent months.
Indian metal stocks poised for a boost: CLSA, in its latest note on the metals sector, believes that Indian mills are well-positioned to capitalize on a demand-driven upcycle, thanks to China’s stimulus measures. The firm projects substantial upside for key players in the Indian metals industry:
- Vedanta could see a potential upside of 24%.
- Tata Steel is projected to gain 19%.
- Hindalco may benefit with a 16% upside.
While CLSA prefers aluminum (aly) plays in the long term, it also sees near-term support for ferrous names, as demand from China is expected to rise, boosting prospects for steel producers.
With China accounting for a significant portion of global metal consumption, the country’s monetary easing is seen as a positive signal for Indian metal producers. If demand picks up, Indian companies could experience a significant boost in revenues and margins, positioning them to benefit from the global upcycle.