JP Morgan bullish on metal stocks. Here's why

Metal stocks outperformed the broader markets on Tuesday, with the BSE Metal index rising 2 per cent as compared to a 1 per cent gain in the BSE Sensex. Aluminium maker Hindalco and Vedanta-promoted Sesa Sterlite shares gained as much as 5 per cent today, while Tata Steel shares traded 2.6 per cent higher as of 12.45 p.m.

Global investment bank JP Morgan says it remains "overweight" on Tata Steel, Sesa Sterlite, Hindalco, JSW Steel and state-run SAIL.

Stable commodity prices and a weakening rupee will support export-oriented metal and mining stocks, JP Morgan says. These companies are set to generate positive free cash flow as the peak capex cycle is behind them, the brokerage adds.

Metal and mining stocks are also likely to benefit from domestic demand, which is expected to turnaround in 2015-16 fiscal, JP Morgan says.

Backdrop:

Metal stocks in India have corrected 20 per cent from the recent peak amid reports of a slowdown in China, which is the world's second biggest economy. However, expectations of a turnaround in the Indian economy present a buying opportunity in these stocks, JP Morgan says.