Rakesh Jhunjhunwala, a partner at Rare Enterprises and renowned investor, believes that the commodity 'supercycle' has just begun and it can last for the next 5-7 years.
“It has just started and we are in a commodity supercycle for the next 5-7 years. However, forget the supercycle, if you base yourself on last quarter’s prices; today steel prices are 20-25 percent higher than the average realization of last quarter. Companies could see earnings of Rs 200-300 per share,” he reasoned.
The previous week saw metal prices correct after the US Fed's policy commentary. The last five trading sessions have seen the Nifty Metal index slide close to six percent.
China announced intentions to release industrial metals from its national reserves to restrain commodity prices.
“Good cement stocks are valued at 30-40 times earnings, steel stocks are valued at 5-7 times earnings and people are doubting it. I am not talking about today’s prices, I am talking about last quarter prices. Everybody knows that cement stocks are going to prosper and steel prices are going to come down and they are not going to last; until there is doubt the prices are just going to go up. I am not bullish but extremely bullish on metal stocks both from earnings and valuation point of view,” said Jhunjhunwala.
Global brokerage Jefferies has a similar point of view and maintains a buy call on Tata Steel with the target at Rs 1,500 per share.
“Tata Steel’s FY21 annual report shows a rising focus on sustainability and also sets out specific targets for 2025/2030. India capacity expansion is a key strategic focus with the company working on separating the UK and Netherlands businesses,” Jefferies has noted.
Jhunjhunwala also gave a disclaimer, which is important to note here.
"I want to make a disclosure that I am an interested party and everything I say, please take it with a pinch of salt," he said.