the disruption of supply from Russia is expected to increase demand from here
the Russia-Ukraine conflict has been sending shockwaves through global markets for many weeks now. while one of its biggest outcomes has been to send price of crude oil soaring, which negatively impacts a major oil-importing nation like India, it is also throwing up some positives for certain Indian businesses. the chief among them have been metal companies, with the main sectoral index (NSE Metal) registering three straight sessions of gains from February 28 to March 2.
is it worth investing in them and if so, which ones?
Russia’s incursion into Ukraine has seen it be shunned economically and in other ways by several countries from across the globe. not only has it been hit with severe economic sanctions, several private companies ranging from global shipping giant Maersk to Apple have decided to suspend operations in its region. as result, not only will Russia struggle to find external buyers for its resources but it may also see a reduction in their domestic consumption. additionally, economic sanctions of this scale are not very easy to reverse and typically last for many months and even years.
this means that the bump in demand for metal (and other resources) to make up for the shortfall from Russia is not a temporary blip, but something that will last a while. India being a resource-rich country allows companies here to step up and meet a good chunk of that demand. further, with India being one of the few major countries (alongside China) not to cut off economic ties with Russia at present, there is also a possibility that it may be able to acquire resources from the latter at favourable prices.
the two stocks in most demand appeared to be Hindustan Zinc and Hindustan Aluminium, which registered gains of 12.8% and 12.6% respectively on March 2. similar companies such as National Aluminium and NMDC might be worth looking into. steel stocks showed strength as well, with Tata Steel and Jindal Steel reaching 5.2% and 5.1% gains in intraday trading.
apart from metal stocks themselves, Coal India saw significant demand, rising 32% in four days. this is because higher demand for production of metals will lead to a rise in demand for coal which is used to power the smelters.
while some of the anticipated demand and price action may already have been priced in at the moment, one can expect the metal sector to outperform in upcoming months. it may be wise to look for a good entry point once the current red-hot rally in share prices cools down.