Nifty Metal plunges 3% amid weak US and China manufacturing data; JSW Steel, Tata Steel lead decline

After a record-breaking performance in the previous trading session, Indian market struggled to maintain those gains today, with frontline indices losing over 1%. This decline was influenced by a sell-off in global peers, driven by weak US manufacturing and labor market data that reignited recessionary fears.

Sector-wise, the metal sector was the hardest hit, with the Nifty Metal index dropping nearly 3% to 9,301 points. All 15 constituents of the index were trading in the red, with JSW Steel losing the most at 3.2%, followed by Tata Steel, Hindalco Industries, and NALCO, which faced losses ranging from 2.5% to 3%.

Red flags for metal demand

The prices of key industrial metals like copper, aluminum, steel, and zinc have been steadily declining in recent months. Copper, often viewed as an economic bellwether, is currently trading at $9,030 per metric ton on the London Metal Exchange, down 18% from its peak in May.

This decline is attributed to subdued demand, high inventories, and the absence of specific stimulus measures from China to support its struggling housing sector.

Weak manufacturing data from the US and China has further raised demand concerns for metals from two of the world’s largest economies.

In the US, the ISM manufacturing index, a key indicator of factory activity, came in at 46.8%, signaling an economic contraction and falling short of expectations. Similarly, factory activity in China, the world’s top metals consumer, contracted for the first time in nine months in July, according to a private sector survey. 

This was in line with an official PMI survey from Wednesday, which showed manufacturing activity at a five-month low.

The Chinese government has refrained from introducing stimulus measures to address the slowdown in its manufacturing sector, instead prioritising the transition of the economy towards advanced technologies and new energies.

Meanwhile, the drop in the ISM manufacturing index, coupled with a rise in US initial jobless claims, has stoked fears of a possible recession and concerns that the Federal Reserve might be too late in cutting interest rates. 

These weak data releases came a day after the Federal Reserve decided to keep rates at their highest levels in two decades, with Fed Chair Jerome Powell hinting at a possible rate cut in September.

Investors are now awaiting the monthly payrolls report from the United States to further assess the health of the world’s largest economy. Looking at the frontline indices, the Nifty 50 fell by 1.14%, reaching a low of 24,726 today, while the Sensex declined by 1%, hitting a low of 80,995 points.

Time for profit booking?

Commenting on recent market developments, Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, “The sudden turn for the worse for the US economy reflected in the ISM Manufacturing index dipping sharply to 46.6 spooked the US and other developed country markets yesterday. This has brought back recessionary fears in the US.”

“The market, which has been soaring on the soft landing expectations, has turned nervous about the possibility of a US recession and its impact on the market. The sharp dip in the US 10-year bond yield to 3.95% indicates the market’s fear,” he noted. 

He pointed out that the recessionary fears will have an impact on the Indian market, too. The rally in India has been sustained more by money flows into the market than by fundamentals. Without fundamental support, the rally cannot be sustained.

It remains to be seen whether the buy-on-dips strategy will work this time too. Since valuations are high, some profit booking, particularly in mid and smallcaps, can be considered, he added. 

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.