The metals sector has emerged as the star performer of 2016, with the BSE Metal index gaining 34 per cent.

The sector performed dismally in 2015 — the BSE Metal index had ended the year down 31 per cent following a plunge in commodity prices. However, losses suffered by investors in the sector were made good in 2016.

Apart from value buying, rise in global metal prices, supply deficit in some commodities, rupee depreciation and government intervention (especially in steel) aided demand for metal stocks in 2016.

Almost all metal and mining companies have ended 2016 with solid gains. Vedanta, Hindalco Industries, Hindustan Zinc, MOIL and JSW Steel top the list of gainers.

The oil and gas sector is the second-best performer with returns of more than 20 per cent as crude oil prices remained benign for most part of the year, thereby helping the oil marketing companies (OMCs). Approval of Cairn India’s merger with Vedanta (pending and an uncertain event for a long time) was also one of the key reasons for the rise in both indices, thanks to the high weightage in the respective indices.

Mixed views Going forward, there are mixed views for the metals sector. While Deepak Jasani, head of retail research at HDFC Securities lists it as his top sectoral bet, Sandip Sabharwal, an independent analyst feels that their outperformance, going forward, will be difficult. Nevertheless, price outlook remains strong for metal companies, especially the non-ferrous category.

“Contrary to trends witnessed earlier, commodities have been firm along with the Dollar Index. Rupee depreciation would aid non-ferrous prices for both domestic as well as export sales with domestic prices determined on landed import parity basis,” pointed out Pallav Agarwal, Analyst at Antique Stock Broking.

Some market experts said that crude oil prices are likely to soften soon as the US economy under Donald Trump tries to be self-sufficient in oil. This is good news for OMCs, which are already witnessing strong consumption growth and improvement in refining margins.

Defensives fail to defend While investors usually invest in traditionally defensive sectors, such as information technology, pharmaceutical and fast-moving consumer goods, 2016 has proved to be an exception, wherein these indices have given negative returns of 5-16 per cent.

Disappointing performance by IT, pharma and consumer sectors (FMCG and consumer durables) is likely to continue due to sector-specific reasons.

Anti-immigration policies expected from the Republican Administration that will take power in the US in January will impact sentiments in the IT sector more than the benefits arising from rupee depreciation.

Concerns, such as negative observations by the US Food and Drug Administration, pricing pressure in the US generics market, pressure on emerging market currencies and price regulations in the domestic market will continue to haunt pharmaceutical company stocks.

Consumption-led companies (except automobiles to some extent) will continue to feel the after-effects of demonetisation for at least one more quarter and any pick-up will only be gradual.

“We expect a fall in cement offtake, automobiles, textiles, gems and jewellery, and retail footfalls,” said Vijay Singhania, Founder-Director, Trade Smart Online, a leading discount brokerage firm.

Along with these three, telecom and realty sectors are also in doldrums due to price war post-launch of Reliance Jio and demonetisation. The BSE Telecom index is the biggest loser on the BSE among the sectoral indices, led by loss of 50-60 per cent in the value of RCom and Idea Cellular.

The story is based on returns calculated till date ending December 27.

S&P BSE Sensex and Nifty 50 are trading up 0.4 per cent and 1 per cent, respectively.

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