MFS’ exposure to metal stocks at 33-mnth high

Over the past few months, metal stocks have been in demand because of positive earnings announcements and an improved business outlook for the sector. With this, equity funds are now investing aggressively in metal stocks.

According to the data from Motilal Oswal Fund folio, metals’ weighting achieved a 33-month high to 3.4 per cent in July, after moderating over the previous two months. In the current calendar year, average weight in the metal sector is around 2.8 per cent. The top ten stocks bought by equity funds in July included Tata Steel and Hindalco Industries.

Metal stock prices have seen a sharp surge because of the rise in metal prices in global markets and a surge in demand in India. “We have seen metal companies reducing their debt in the past year and the government's focus on infrastructure. We still believe there is upside in the sector,” said a fund manager of the leading fund house.

Over the past year, the S&P BSE Metal index has risen around 140 per cent; stocks, such as Tata Steel and JSW Steel, have given returns of 260 per cent and 185 per cent, respectively, during this period.

Edelweiss Securities in its sector report for metals and mining stated that it sees two structural drivers that can shape the sector in the medium term. They are the ongoing decarbonisation drive in China and the global trade shift in light of protectionism.

“In our view, steel, in particular, has become more localised with various protectionist measures enacted by several countries/regions. Besides, the high price of steel has prompted Russia and China to adopt measures deterring exports. We believe this has opened up the market for Indian players which have been increasing their export allocation at much higher margins,” stated the report.

The data from Securities and Exchange Board of India (Sebi) shows that as of July, equity funds have deployed ~38,516.03 crore in ferrous metals and ~17,550.13 crore in non-ferrous metals.

Apart from the metal sector, fund houses are also bullish on banking, financial services and insurance (BFSI) space in July. ICICI Bank, SBI and Bajaj Finance were among top ten stocks bought by the equity funds in July.