Explained | Here's why metal stocks are seeing a selloff in trade today

Metal stocks witnessed a sell-off on Friday, February 13, as Hindalco led the losses.

Top sectoral loser, the Nifty Metal index snapped its five-day gaining streak on Friday. It was down 2.8% around 12.30 pm.

This comes after unconfirmed reports suggest that US President Donald Trump plans to scale back some tariffs on steel and aluminium goods.

The sentiment is positive for global steel and aluminum industry. The fear of demand destruction will go away.

Overall, it is neutral for most of the steel and aluminium stocks.

However, Hindalco comes under pressure via Novelis. Reduction in tariff rates could lead to correction in the US aluminum Midwest premiums, which had surged to all-time highs of $2,250 per tonne levels. If the Midwest premium comes down, it will have an adverse impact on scrap spread initially.

Hindalco told CNBC-TV18 that with Midwest premium being at $2,200 the negative impact of higher tariffs was behind.

Hindalco reported sharp improvement in itsthird quarter operating performance, supported by a strong India business, even as disrruptions in its subsidiary Novelis weighed on the consolidated earnings.

Meanwhile, Trideep Bhattacharya, CIO-Equities, Edelweiss AMC, told CNBC-TV18 that the area that they are lightening is within metals, "where things have been quite well, particularly in the non-ferrous side is something that we have probably, of late, taken some profits," Trideep Bhattacharya, CIO-Equities, Edelweiss AMC, said.

He said gold as an asset class, or precious metals as an asset class, should be part of asset allocation for investors.

He said, like the rally in precious metals, like in IT, sooner than later it would get to an "interesting level" to get in in gold and silver or precious metals. He said, the next trade over the next few months is probably to lower rather than increase weightage in the two.

"One can't time exactly, but I would say that a lot of optimism in the long-term is reflected in the prices already. That doesn't take away the fact that in the near-term, both of these (metals and IT) can go up, but the next trade is to lighten up, rather than kind of load up at current levels," Bhattacharya said.

Hindalco and Tata Steel are among the metal stocks that witnessed the biggest increase in earnings estimates in the past year, despite steel prices hitting a five-year low in India in recent months.

Hindalco has gotten a 19.7% increase, due to the recent momentum in international metal prices, particularly copper and aluminium, driven by the weakening dollar in the global market.

The company's promoter Kumar Mangalam Birla also recently decided to commit $6 billion over the next five years into mining aluminum and copper.

Meanwhile, the earnings estimates for Tata Steel have gone up by 10.1%.

Hindalco shares were the top Nifty Metal loser, trading over 5% lower, followed by Hindustan Zinc, National Allum, Hindustan Copper and Vedanta Ltd.Barring SAIL, the remaining 14 stocks in the Nifty Metal index were trading with losses.

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