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By Brijesh Bhatia,
The Indian stock market has witnessed a volatile six months, with the benchmark indices fluctuating in a way that has caused unease among traders. D-Street has felt the tremors of fear, uncertainty, and caution as market participants struggle to trade through the choppy waters. As global and domestic factors influence the market’s direction, it’s easy to get caught up in the herd mentality, where fear overshadows logic and decision-making.
However, as Warren Buffett wisely puts it, “Be fearful when others are greedy and greedy when others are fearful.” This timeless quote emphasises the importance of acting when others are scared.
The key, however, lies in knowing where to look and how to analyse market conditions to identify opportunities that others may be overlooking. In times of fear, if you focus on the right sectors, the market may reward you with substantial gains.
One sector that is offering an attractive opportunity amid this fear is the metals sector. While fear dominates sentiment, the metal industry is signalling the potential for strong growth, as seasonality trends in copper prices suggest favourable conditions for metal stocks.
Why focus on metal stocks?
The appeal of metal stocks, particularly in the current environment, lies in the seasonality analysis of MCX Copper prices. Over the last decade, February has consistently shown positive returns for copper, with an average gain of 3.25%.
| Year | January | February | March | April | May | June | July | August | September | October | November | December | Yearly Return |
| 2015 | -14.09% | 8.44% | 1.79% | 6.91% | -4.44% | -4.63% | -9.04% | 1.89% | 0.28% | -1.79% | -10.52% | 4.77% | -20.95% |
| 2016 | -1.24% | 3.34% | -0.23% | 4.03% | -6.49% | 4.69% | 0.78% | -7.31% | 7.51% | -0.76% | 21.47% | -4.86% | 19.43% |
| 2017 | 7.78% | -2.03% | -4.30% | -3.45% | 0.31% | 4.46% | 6.61% | 5.82% | -1.52% | 3.91% | -2.99% | 8.02% | 23.67% |
| 2018 | -3.24% | -1.09% | -2.06% | 2.88% | 1.70% | -2.38% | -3.59% | -1.84% | 7.27% | -3.81% | -2.10% | -4.41% | -12.50% |
| 2019 | 7.32% | 6.19% | -2.94% | -1.34% | -8.55% | 1.01% | 7.55% | -0.25% | -0.33% | 1.93% | -0.04% | -1.33% | 8.38% |
| 2020 | -1.97% | -1.59% | -28.30% | 32.41% | 0.91% | 12.78% | 10.27% | 2.86% | -0.99% | 2.41% | 9.92% | 3.75% | 36.72% |
| 2021 | -0.07% | 18.63% | -5.12% | 12.87% | 0.07% | -6.09% | 5.51% | -4.81% | -1.31% | 6.38% | -2.47% | 1.54% | 24.58% |
| 2022 | -0.25% | 3.49% | 5.71% | -3.60% | -1.35% | -9.78% | -8.31% | 0.51% | -0.99% | 2.64% | 2.90% | 6.43% | -3.97% |
| 2023 | 8.32% | -3.15% | 2.68% | -4.73% | -3.92% | 0.39% | 3.66% | -0.90% | -3.59% | -0.82% | 1.52% | 2.01% | 0.69% |
| 2024 | 0.43% | 0.29% | 3.34% | 13.94% | 1.26% | -2.18% | -7.06% | 1.32% | 5.36% | -3.96% | 1.15% | -3.42% | 9.34% |
| Avg. Performance | 0.30% | 3.25% | -2.94% | 5.99% | -2.05% | -0.17% | 0.64% | -0.27% | 1.17% | 0.61% | 1.88% | 1.25% |
Source: RZone, Definedge Securities
The Nifty Metal Index: A Bullish Setup?
The Nifty Metals index is showing signs of a bullish reversal.
Source: TradePoint, Definedge Securities
A Piercing Candlestick pattern on its weekly chart suggests a possible change in trend, particularly as the index has approached key support levels like the 62-week exponential moving average (62WEMA) Channel. This pattern often signals the possibility of a sharp reversal to the upside, and those who act early may reap the rewards.
While there is always a risk that the index has broken previous support levels, the bullish reversal pattern indicates that a recovery could be in the cards. With this setup in mind, let’s jump on to three individual metal stocks that could benefit from this potential market move.
1. National Aluminium (NALCO)
National Aluminium Company (NALCO) is a public sector undertaking and one of India’s largest producers of aluminium. Its integrated business model spans bauxite mining to the production of aluminium products. As one of the top players in the aluminium sector, NALCO’s fortunes are tied to global and domestic demand for aluminium and the price of the metal itself.
Source: TradePoint, Definedge Securities
On the daily chart, a Bullish Crab Harmonic Pattern is evident. This particular harmonic pattern is known for its ability to forecast market reversals. The pattern’s formation at the 200-day exponential moving average (200DEMA) Channel suggests that the stock could be positioned for an upward reversal. The 200DEMA is a key level of support, and the occurrence of a bullish pattern here adds to the possibility of a price reversal.
Given the current technical setup and favourable seasonality conditions for metals, NALCO is one of the sector’s potential picks.
2. Tata Steel
Tata Steel, one of the largest steel manufacturers in India, is an integral part of the global steel industry. The company operates across diverse sectors, including automotive, construction, and infrastructure.
Source: TradePoint, Definedge Securities
Tata Steel’s chart reveals a Bullish Gartley Harmonic Pattern on the weekly timeframe. The Gartley pattern is known for signalling reversals at key price levels, and its appearance on Tata Steel’s chart is particularly meaningful. This pattern has formed at the 200-week exponential moving average (200WEMA), another critical support level. The confluence of the bullish Gartley pattern and the 200WEMA support increases the likelihood of a price rebound.
Steel prices often correlate with copper and other industrial metals, so Tata Steel’s outlook appears promising. The stock could potentially see strong upside as market sentiment shifts toward recovery in the metal sector.
3. Hindustan Zinc (Hind Zinc)
Hindustan Zinc, a subsidiary of Vedanta Ltd., is one of India’s largest producers of zinc and lead. As a leader in the zinc market, Hind Zinc’s financials and stock price are heavily influenced by fluctuations in the price of zinc, which plays a crucial role in industrial applications, including construction, automotive, and machinery.
Source: TradePoint, Definedge Securities
On Hindustan Zinc’s weekly chart, both the Bullish Gartley Harmonic Pattern and a Bullish Piercing Candlestick Pattern are visible. The bullish candlestick pattern indicates a potential shift in momentum, while the Gartley pattern suggests that the stock is positioned for a reversal. The appearance of these patterns at the 200WEMA level further confirms the likelihood of an upward price movement in the coming weeks.
Given the technical setup, the stock presents a potentially favourable risk-reward scenario for traders looking to capitalise on the recovery in the metal sector.
The Case for Metals Amid Fear
In a market characterised by fear and uncertainty, it is easy to be swayed by short-term sentiment and market noise. However, strategic investors can find opportunities where others may see only risk. The metals sector, with its favourable seasonality trends and bullish technical patterns, presents a compelling case for focused investment.
By monitoring stocks like National Aluminium, Tata Steel, and Hindustan Zinc, investors can position themselves to take advantage of the sector’s potential recovery.
Disclaimer
Note: We have relied on data from throughout this article. Only in cases where the data was not available have we used an alternate but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Brijesh Bhatia has over 18 years of experience in India’s financial markets as a trader and technical analyst. He has worked with the likes of UTI, Asit C Mehta, and Edelweiss Securities. Presently he is an analyst at Definedge.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article. However, clients of Definedge may or may not own these securities. The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The articles’ content and data interpretation are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.
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