homemarket NewsJefferies says it may be too soon to buy steel stocks

Jefferies says it may be too soon to buy steel stocks

Jefferies says it may be too soon to buy steel stocks
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By Kanishka Sarkar  Sept 26, 2022 11:56:12 AM IST (Published)

Tata Steel shares slipped nearly 5 percent, JSW Steel gave up 3.5 percent, and Jindal Steel declined more than 5 percent in intraday trade as Jefferies believes it is still early to turn constructive on steel stocks.

Shares of steel companies, including Tata Steel and JSW Steel, were among the worst performing stocks, with all 10 in the S&P BSE METAL pack in the red on Monday, September 26.

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Tata Steel shares slipped nearly 5 percent, JSW Steel gave up 3.5 percent, and Jindal Steel declined more than 5 percent in intraday trade. The downtrend in the stocks comes amid a broader sell-off in the market.
Stock Change (%) 
JSW Steel-3.99%
Tata Steel-4.75%
Jindal Steel & Power-6.15%
SAIL-5.18%
Jindal Stainless-7.41%
Global brokerage Jefferies believes steel rates are still under strain, with flat steel prices declining 19 percent from the Jun quarter average. It sees further downside risk as Indian prices are still 6-11 percent above import parity. The brokerage expects demand to improve seasonally, but global macro risks remain.
It is of the view that it is still early to turn constructive on steel stocks
Jefferies prefers Tata Steel over JSW Steel, given lower price-to-book valuations and better cash flow outlook.
It suggests holding Tata Steel shares and has raised the target price to Rs 95 per share from Rs 87, meaning it still sees an 8.8 percent downside in the stock from Friday’s closing price.
The stance comes after Tata Group announced it would merge seven of its metal companies into Tata Steel to drive efficiencies and reduce costs. The amalgamation will be through a share swap, Tata Steel said.
The board of Tata Steel approved the amalgamation of subsidiaries — Tata Steel Long Products, Tata Metaliks, The Tinplate Company of India, TRF Ltd, Indian Steel & Wire Products, Tata Steel Mining, and S&T Mining into itself.
Explaining the rationale behind the merger scheme, Tata Steel, in a statement, said the resources of the merged entities can be pooled to unlock the opportunity for creating shareholder value.
Meanwhile, Jefferies expects JSW Steel’s stock to correct more than 42 percent from the last closing price as it has given it an underperform rating with a target price of Rs 385 per share.
Mitessh Thakkar of earningwaves.com, on the other hand, has a sell call on JSW Steel with a stop loss of Rs 680 and a target of Rs 630.
Last week, Pinakin Parekh, Executive Director-Metals & Mining, Oil & Gas, Cement at JP Morgan India, said the steel industry was exiting the seasonal downturn seen globally in the June, July, and August period, and so the marker is behind destocking.
“We have seen the first yield price hikes being announced in Europe, even in the US, half of it is going through - the big elephant in the room is as to how does China's peak construction season demand play out? It starts sometime in September-October. So far, it seems muted,” he told CNBC-TV18.
On the margin, Parekh thinks that given the destocking, steel prices, at least globally, should move higher, not very high though, but there should be some rebound.
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