Jefferies turns 'positive' on Indian metals on easing Covid curbs in China

The change in stance comes after almost a year of cautionary view. The Nifty Metal index advanced over 2 per cent while shares of Tata Steel surged nearly 6 per cent

Shares of metal companies were in focus as the Nifty Metal Index was the top sectoral gainer, up over 2 per cent, after global brokerage firm Jefferies turned positive on Indian metals.

Since China started to ease Covid curbs, the support has started to plague its property sector, observed the brokerage.

Among individual stocks, shares of Tata Steel surged nearly 6 per cent today after analysts at the brokerage upgraded the stock from ‘hold’ to ‘buy’.

“Tata Steel’s price-to-book value and enterprise value-to-invested capital valuations are close to its long-term average, which we find attractive amid its improving asset footprint and balance sheet,” they said in a Monday report.

Jefferies has a target price of Rs 150 on the Tata group company. It has also upgraded Hindalco to ‘buy’, with a target price of Rs 600.

Meanwhile, Steel Authority of India and Jindal Stainless rallied up to 8 per cent and 7 per cent, respectively, while MOIL [earlier known as Manganese Ore (India)], National Aluminium Company, Hindustan Copper, Vedanta, and Hindalco were up between 3 per cent and 6 per cent.

Shares of Jindal Steel & Power, on the other hand, rallied 4 per cent to hit a 52-week high of Rs 601.9 in Monday’s intraday trade.

Moreover, shares of non-index stocks like Usha Martin, Prakash Industries, Rama Steel Tubes, Jai Balaji Industries, Sunflag Iron & Steel, Godawari Power & Ispat, and Lloyds Metals & Energy, too, surged up to 16 per cent in Monday’s intraday trade.

Today, the Nifty Metal Index ended 2.4 per cent higher, against 0.51 per cent rise in the Nifty50.

After steep sell-off by foreign portfolio investors in the second and third quarters of this financial year (2022-23), the metal space is vibrant once more as analysts expect the worst-margin quarter for Indian steel firms to be over.

“With China unlocking and rushing to finish real estate projects, we expect demand for iron ore to remain strong in the near term. With winter in China setting in, the focus shall again be on importing more pellets from India, driving demand for iron ore in India. The government waiving pellet export duty is an added incentive,” said analysts at Motilal Oswal Financial Services.

According to analysts at ICICI Securities, recovery in world steel demand is likely to moderate. India, they said, remains a bright spot on the global map.

“Although global steel demand is likely to contract 2.3 per cent to 1,797 metric tonnes (mt) in CY22E, it will witness marginal recovery of 1 per cent to 1,815 mt in CY23E. On the other hand, Indian steel demand is likely to increase 9 per cent to 115 mt in FY23E and further by 6 per cent in FY24E to 122 mt,” said the brokerage.

Since global steel demand recovery is likely to be uneven, prices are likely to remain volatile. In such a scenario, healthy domestic demand growth augurs well for Indian steel players.

“After a subdued gross domestic product (GDP) growth in CY22E, we expect modest recovery in China’s economic growth in CY23E. An improved GDP growth, coupled with recent steps taken by authorities to relax Covid-related restrictions, is also likely to aid moderate recovery in Chinese steel demand in CY23E,” said ICICI Securities.