Global financial major Jefferies believes that there is a significant upside potential in stocks like Tata Steel and Hindalco as they have lost ground in the current calendar year and have underperformed their global peers. The recent recovery in the Indian steel prices is also a catalyst, it says.
“Our covered metal stocks (Tata Steel, Hindalco, JSW Steel) are down 5-14% CYTD (Nifty-50: -2%), underperforming most global peers, which are up 5-34% CYTD… We see the recent underperformance as a buying opportunity in Indian metals; our top pick is TATA (Tata Steel), followed by HNDL (Hindalco),” states a recent Jefferies report on the Indian metal and mining sector.
Incidentally, Jefferies believes that there is a 40 per cent upside potential in Tata Steel – target price of ₹145 compared to the current market price of ₹104.50 -- and a slightly higher 48 per cent upside in Hindalco with a target price of ₹570 – it has a buy recommendation on both the metal majors.
The global major further believes that even as China is showing signs of recovery – its manufacturing PMI rose to 11-year high and export steel price is up 14 per cent in 2023 – Asian steel prices are also on the rise and spreads should expand further with Indian steel prices also improving.
“India HRC (hot-rolled coil) steel price, after falling 13% in 2022, has also improved 8% CYTD to around Rs 60K/t but is still at 3% discount to landed imports from China. India had turned a net importer of steel in 2HCY22 as domestic prices were at a premium to landed imports and the government had imposed 15% export tariff in May 2022. With domestic prices now at a slight discount to imports and government scrapping the export tax in November, net imports have declined in Jan. Our estimates factor in India HRC steel price of Rs 61.0-61.5K/t in FY24-25E, broadly in-line with spot,” states the Jefferies report.
Aluminium spot spread has improved in 2023 with the sharp fall in thermal coal price, it added.
Interestingly, stocks of most Indian metal majors have lost ground in the current calendar year even as global players like Constellium SE, Arconic Corporation, Angang Steel Company, ArcelorMittal, Posco and China Hongqiao Group have all gained ground in 2023 till date.
Also read: CLSA sees a 35% upside in Reliance Industries shares; here’s why
Also read: SBI, IndusInd Bank, ICICI Bank Jefferies top stock picks in banking sector. Here's why