Metal company stocks bore the brunt of Monday's mayhem with the metal index plunging 361 points to close at 10,072 points.
Most of the blue chips, including JSW Steel, SAIL, Tata Steel, Sterlite Industries, Sesa Goa and Hindalco Industries, finished the day with a huge fall.
The fear of further slowdown in economic growth depressing the demand for metals led to hammering of the stocks on Monday. Though prices of raw materials, including that of iron ore and coal, have softened marginally, analysts expect the fall in demand to curb the capacity utilisation of major metal producers who are already operating at 80-85 per cent of production capacity. The fall in key raw material prices may not be of much help to metal producers as they carry inventory of high cost material.
The BSE Metal index had underperformed the wider market over the last one month. The metal index dipped 6.17 per cent against Sensex's 2.25 per cent decline. The index performance in the last quarter was lower by about 12 per cent as against 0.60 per cent slide in the Sensex.
Despite tepid demand and falling international prices, steel prices in India have remained stable in the last few months due to high raw material cost and unprecedented 10 per cent depreciation of rupee against dollar in last three months. Non-ferrous segment may also see margin compression due to lower London Metal Exchange (LME) prices.
Tata Steel's consolidated net profit during the second quarter of this fiscal fell 89 per cent to Rs 212 crore even as its income rose 12 per cent to Rs 32,918 crore. The company's performance was adversely impacted by higher global raw materials costs and lower average selling prices at Tata Steel Europe. Its net debt at the end of September quarter stood at Rs 45,056 crore against Rs 46,627 crore at the end of March 2011.
Similarly, SAIL's net profit fell 55 per cent to Rs 495 crore on 2 per cent increase in net sales at Rs 10,837 crore. The fall in net profit was attributed to a forex loss of Rs 509 crore incurred by short-term foreign currency loans, lower volume, higher raw material, power and staff costs.
JSW Steel reported a consolidated net loss of Rs 669 crore for the September quarter, compared with net profit of Rs 373 crore in Q2 September 2010.
“The ongoing issues such as mining mess, policy paralysis and slowing economy are structural in nature and the financial performance is expected to remain stressed for metal companies, at least for the next two quarters,” said an analyst.