Nifty 50 @26K | Nifty metal gains 3% to near 2-month high, NALCO biggest gainer; What fueled the rally?

Domestic equity benchmarks Sensex and Nifty 50 extended their winning streak for the fourth consecutive session on Tuesday, September 24, before settling flat, having swung between slight gains and losses through the day. The boost to metal stocks from China's new stimulus measures was offset by profit-booking, especially in select banking and consumer goods and staple stocks.

The bigger boost on the day came after China, the top producer of several metals including steel and coal, unveiled a slew of measures to try to spur its sluggish economy. Metal stocks jumped three per cent during the session, the most among the 13 major sectors, to a near two-month high. Heavyweights Tata Steel, Hindalco and JSW Steel rose between 0.5 per cent and four per cent.

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Nifty metal index nears two-month high: What fueled the rally?

The Nifty metal index gained three per cent on Tuesday fueled by the China stimulus. The metal index opened at 9,531.35 and surged to an intra day high of 9,745.30 before settling 2.97 per cent higher at 9,735.40. National Aluminium Co Ltd (NALCO) emerged as the biggest gainer logging a rose of 6.64 per cent in its stock price. 

Parthiv Jhonsa, Lead Analyst (Metal & Mining), Anand Rathi Institutional Equities said, “The metal and mining sector has surged today following China's announcement of measures to boost the property market. The Chinese government is expected to lower the outstanding mortgage rate and reduce the down payment required for second home purchases.”

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“There may be opportunities to renegotiate or refinance existing mortgages among banks, and the government plans to enhance its re-lending program for state-owned firms to help absorb unsold property inventories,” added Jhonsa.

According to the market analysts, while a rebound in metal prices is anticipated in the short term, it has often fallen short of expectations. “We believe that the Chinese housing market has been struggling for the past four years, and unless there is stabilization in prices and a reduction in unsold inventory, any government initiatives will likely be inadequate,” he added.

Analysts said that a growing domestic economy would likely stop Chinese steelmakers from dumping low-priced steel in other countries, including India, in search of profits. "Besides, the recovery in China would strengthen export demand for the metals as well," said Ajit Mishra, Senior Vice President (SVP) of research at domestic brokerage firm Religare Broking.

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China's central bank on Tuesday unveiled the biggest stimulus since the COVID-19 pandemic to pull the economy out of its deflationary funk and back towards the government's growth target. However, analysts warned more fiscal help was vital to hit these goals. They questioned how productive the liquidity injections would be, given weak credit demand from businesses and consumers, and noted the absence of policies aimed at boosting real economic activity.

The broader-than-expected package offering more funding and interest rate cuts marks the latest attempt by policymakers to restore confidence in the world's second-largest economy after multiple disappointing data raised concerns of a prolonged structural slowdown. The People's Bank of China (PBOC) will also cut the seven-day reverse repo rate, its new benchmark, by 0.2 percentage points to 1.5 per cent, as well as other interest rates.

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Stock market today: Nifty 50 @26K, Sensex hits mount 85K

The S&P BSE Sensex crossed the 85,000-level for the first time, achieving an all-time high of 85,163 points, marking the fourth straight session in which the index has recorded new highs. The NSE Nifty 50 index also achieved new heights for the fourth consecutive trading day, surpassing the 26,000 mark for the first time to hit a record high of 26,011 points. 

It took the index 38 sessions to rise from the 25,000 mark to 26,000. The Nifty 50 closed 0.01 per cent higher at 25,940.4 points, while the S&P BSE Sensex dropped 0.02 per cent to settle at 84,914.04. The indices have hit four straight record highs after the US Federal Reserve's super sized 50 bps rate cut last Wednesday sparked hopes of higher foreign inflows in Indian equities. The magnitude of the increase has been easing in each market session. 

Analysts said the rally was fueled by ongoing optimism about India's economic growth prospects and the easing of monetary policy in the US, which is expected to attract more foreign investment. India's weight in the EM index rose to an all-time high of 19.8 per cent from 18.8 per cent in May, while China's, the index leader, dropped to 24.2 per cent from 24.7 per cent, according to the index aggregator's August quarterly review. 

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Global funds are increasingly investing in India, as the fastest-growing major economy narrows its gap to take leadership in emerging markets MSCI index, which is expected to attract steady capital inflows. India's benchmarks have been on a record-hitting spree as foreign inflows have pumped up the gauges to cross newer levels. 

As the interest rates go down globally, emerging equity markets are likely to receive inflows, and India is expected to receive a major chunk as the economy demonstrates vastly improved macroeconomic fundamentals and buffers. Inflation domestically is on a declining trajectory and the health of banking and corporate sectors remain strong amid fiscal consolidation under way. 

Nifty has been one of the better-performing equity markets with Nifty rallying ~19.3 per cent on a YTD basis. "The Nifty-50 has provided exceptional returns, compounding ~15 per cent from FY19 to FY24, driven by strong corporate earnings growth with a CAGR of 18 per cent. This resulted in Nifty profits increasing from ₹3.5 trillion in FY19 to ₹7.9 trillion in FY24," said Anil Rego, Founder and Fund Manager at Right Horizons.

"We expect earnings momentum to sustain and estimate the aggregate profit pool of all listed stocks to reach above mid-cycle level to 5.7 per cent of GDP by FY26E vs 5.1 per cent in FY24. As the drivers of earnings upcycle remains intact earnings is expected to compound at 15 per cent over FY24-26. We see reasonable valuation in largecaps and specific pockets of SMIDs," added Rego.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.