Metal stocks on Dalal Street have been moving in tandem with the benchmark indices since the beginning of the current financial year. Where the BSE Metal index has gained 7.5% since April 1, 2024, the 30-share Sensex advanced 7.4% during the same period. Meanwhile, the metal sector witnessed some pressure on August 14 after the Supreme Court ruled that states can levy tax and royalty on minerals, apart from central duties and collect past dues.
So what does the ruling mean for the metal and mining sector? Rakesh Arora, Founder of market research firm Go India Stocks, says the impact of the Supreme Court ruling is big and the impact has to be recognised in the P&L of each of the companies.
After falling over 1.5% on Wednesday, the BSE Metal index continued to underperform the Sensex. Where the former index traded 0.61% higher at around 11.50 am (IST) on August 16, the latter was up nearly 1% at around the same time. Shares of Tata Steel were up 0.68% at Rs 147.20. Vedanta, SAIL and Hindalco were up over 1% each.
Arora added that Tata Steel has a big impact—payment—has to be recognised in the P&L. For Tata Steel, the potential outgo could be over Rs 17,000 crore, with the estimate for all the players being upwards of Rs 1.5 lakh crore.
“Since it is a Supreme Court judgement, there is limited scope for further appeal,” he thinks. The government coming up with an amendment is a possibility.
A nine-judge Bench of the Supreme Court ruled that its July 25 decision, which allows state governments to impose taxes on mining and related activities, will be applied retrospectively, but only for transactions occurring after April 1, 2005.
Kranthi Bathini, Equity Strategist, WealthMills Securities said, “The ruling is going to be very stock specific. Some companies have made provision for this, while some have cash reserves. Changes are high that companies will pass the increasing cost to customers. It also depends on from which state the company is operating.”
Ravi Singh, SVP–Retail Research, Religare Broking told BTTV that the ruling will mostly impact PSU mining sector. “Most of the impact has already been factored in. This kind of news brings an opportunity to buy stocks at lower rates,” he said. Shares of Coal India, which declined 3.18% on August 14, traded 0.24% up at Rs 505.90. Likewise, NMDC, which retreated 6% in the previous session, was up 1% at around 12.18 pm (IST).