BSE Metal Index (11100.1) constitutes 13 stocks in which Tata Steel has the highest weight of 21.9 per cent and Jindal Steel 15.6 per cent. Hindalco Industries and Sterlite Industries enjoy 14.8 per cent and 14.7 per cent weight in the index respectively.
Since July 7 peak, the BSE Metal Index has underperformed the BSE Sensex by a wide margin.
The Sensex has declined 12 per cent from its July peak of 19,078.3 whereas the BSE Metal Index has tumbled 28 per cent from its peak of 15,124.4.
Among the top four BSE Metal Index stocks, Hindalco Industries has plunged 38.5 per cent since July 7 peak to till date, Sterlite Industries has nose-dived 32.3 per cent, Tata steel has slumped 28.7 per cent and Jindal Steel has declined 19.3 per cent.
Ever since encountering resistance at around 18,000 in April 2010, the BSE Metal Index has been on an intermediate-term downtrend.
Following a broad sideways consolidation between 13,900 and 18,500, the metal index conclusively broke downwards in early August this year.
Subsequently, the index fell steeply and breached the key support at 13,000 and 12,500 in early August. It had briefly declined below its long-term trend deciding level of 11,300 in early October and registered a 52-week low at 10,286, before bouncing up.
However, the bounce back did not sustain and the index lost its strength and is currently testing the key level 11,300. In our previous review of the index in late May we had mentioned that an emphatic fall below 11,300 will mar the uptrend which has been in place from its October 2008 low and accelerate the decline to 9,500, 8,000 and 7,000 levels.
We adhere to this view. On the other hand, a strong rally above 12,500 can take the index northwards to 13,300 and to 14,000 levels in the upcoming months.
Only a decisive move beyond 15,500 will reverse the downtrend and lift the index to 16,700 and then to 18,000 in the long-term.
Medium-term
After encountering resistance in the band between 15,300 and 15,500 in early July this year, the index has been on a medium-term downtrend.
Hitting an immediate resistance around 11500, the index has just resumed its downtrend; however, it could find support at its immediate base level of 10,910.
A plunge below this support can strengthen the ongoing downtrend and pull the index down to 10,286 and then to 9,800 levels in the medium-term.
Nevertheless, a breakthrough of resistance at 11,500 can take the index higher to 12,250 and to next resistance at 12,850. Only a rally above 13,500 will alter the medium-term downtrend.