Steel stocks rally into green

The Metal Index is strongly in the positive zone today with all nine stocks in the index quoting in the green, led by Jindal Steel, Tata Steel, JSW Steel, SAIL, Hind Zinc, MMTC, Hind Copper. The steel stocks, all of them are up in the green.

The reason? The international brokerage firm, CLSA has put out a research note on the Indian steel sector and has said that the sector is ripe for a rerating.

It has cited various reasons for this optimism:

• Earnings will remain protected due to the anti-dumping duties for next four years, which in turn will help bring down debt and give relief to leveraged balance sheets.
• No serious retaliation from other countries is expected.
• Focus on affordable housing to give spurt to demand growth by 5-7% over next four years.
• None of the big steel players looking to expand capacity in the near future and with preference being given to state-sponsored projects will add to demand.
• Lack of expansion over the last few years will contribute to a limiting supply in the future, meaning net import of steel will rise to 8% of consumption by financial year 2020-21.
• These developments will leave pricing power in the hands of the Indian companies, carving out a premium over imports.
• It has given a “buy” on both Tata Steel and JSW Steel, hiking the target price to Rs.710 and Rs.300 respectively.