Tata Steel, SAIL, JSPL, APL Apollo: A sharp outperformance over Nifty likely, says JM

Thanks to favourable price seasonality, mutual fund positioning, and trends in open interest positioning, JM Financial expects ferrous stocks such as Tata Steel Ltd, SAIL, Jindal Steel & Power Ltd (JSPL), and APL Apollo Tubes to outperform Nifty, in the short run, by a good margin.

In terms of seasonality, Tata Steel has settled higher in eight of last 10 Aprils. The stock delivered an average return of 7 per cent in past 10 Aprils. SAIL and Apollo Tubes also closed higher in eight of past 10 Aprils, with an average return of 14 per cent and 10 per cent, respectively. JSPL settled in the green on 7 occasions, with an average return of 8 per cent. 

JM Financial noted that the cumulative futures open interest in most ferrous stocks (barring for Tata Steel) stood higher than the average open interest of last three series, as observed on the day of inception. 

"Most accumulation seems to be on long side, suggesting aggressive buyers in the futures segment," it said.

Except for JSPL, where MFs are overweight the NSE200 pack, JM Financial noted that the institutional class is underweight in Tata Steel, SAIL and Apollo Tubes, offering scope of buying.

"With most data points suggesting a potential reversal in the constituents, we expect a round of sharp outperform-ance to prevail. Any further underperformance from hereon should be used to go overweight in the sector," JM Financial said.

Ferrous stocks have underperformed the Nifty in FY24. An equal weighted basket of Tata Steel, SAIL, JSPL and APL Apollo Tubes is up 0.6 per cent against Nifty's 5.3 per cent rise, resulting into an underperformance of 4.7 per cent.

JM Financial said the ratio of the ferrous basket over the Nifty is trading at 2.0045 levels against a high of 2.7349 as observed on June 23, 2024, suggesting an under-performance of 27 per cent.

"Post the highs, the ratio has been making a pattern of lower top lower bottom, a bearish formation, with the lows of 1.8538 levels observed on February 54, 2025. It negated the bearish formation in the month of March, 2025, hinting toward a potential trend reversal in the ratio, the brokerage said.

It said an immediate resistance in the ratio is placed at 2.135 level, above which a move towards 2.33-2.35 levels cannot be ruled out. A strong support in the ratio prevails in the range of 1.83-1.85 level, coinciding with the previous breakout zone, it said.