China's Economic Boost Sparks Hope for Indian Metal Companies
China's real estate industry has been struggling, but new stimulus measures aim to boost the sector and fuel demand for metals.
China EconomyMetal StocksReal EstateStimulus MeasuresIndian Metal CompaniesReal EstateSep 24, 2024
Shares of metal companies like Vedanta, National Aluminium (NALCO), and Tata Steel rose up to 5% on the BSE. Other metal stocks, including JSW Steel, Jindal Steel, Hindalco, and Hindustan Copper, gained between 2-3%.
According to Deepak Jasani, head of retail research at HDFC Securities, the risk appetite for metal stocks improved after China's central bank announced the economic measures. The People's Bank of China (PBOC) Governor Pan Gongsheng unveiled plans to reduce borrowing costs and allow banks to increase their lending.
The central bank will cut the amount of cash banks have to hold in reserve, known as reserve requirement ratios (RRR), by half a percentage point. This move is expected to free up about 1 trillion yuan ($142 billion). Additional measures aim to boost China's crisis-hit real estate market by cutting interest rates for existing mortgages and lowering minimum down payments on all types of homes to 15%.
The country's real estate industry has been struggling with a sharp downturn since 2021, with several real estate developers collapsing and leaving large numbers of unsold homes and unfinished building projects. China's new economic stimulus measures come just days after the US Federal Reserve lowered interest rates for the first time in over four years.
China is the largest consumer of metals, and moves to boost economic activity are seen as a positive for commodities. However, Parthiv Jhonsa, Lead Analyst (Metal & Mining) at Anand Rathi Institutional Equities, notes that historically, while a short-term rebound in metal prices is expected, it often falls short of expectations.
The Chinese government is also expected to lower the outstanding mortgage rate and reduce the down payment required for second home purchases. Additionally, 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.
Jathin Kaithavalappil, AVP- Institutional Research at Choice International, says such measures can be effective only when excess inventory in the housing market is tamed. The rally in metal stocks reflects optimism among investors that China's expected support may increase demand and add profit margins for Indian companies dealing in metals.
Frequently Asked Questions
What measures has China's central bank announced to boost the economy?
China's central bank has announced plans to reduce borrowing costs and allow banks to increase their lending, including cutting the reserve requirement ratio (RRR) by half a percentage point.
How have metal stocks reacted to China's stimulus measures?
Metal stocks have surged, with the Nifty Metal index jumping nearly 3% to settle at 9,735.40 points, its highest level in almost two months.
What is the current state of China's real estate industry?
China's real estate industry has been struggling with a sharp downturn since 2021, with several real estate developers collapsing and leaving large numbers of unsold homes and unfinished building projects.
How do experts view the effectiveness of China's stimulus measures?
Experts are cautious, noting that while a short-term rebound in metal prices is expected, it often falls short of expectations, and that excess inventory in the housing market needs to be tamed for the measures to be effective.
What opportunities may arise for Indian metal companies from China's stimulus measures?
The rally in metal stocks reflects optimism among investors that China's expected support may increase demand and add profit margins for Indian companies dealing in metals.
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