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Tata Steel, Hindalco: Jefferies sees buying opportunity after metal stocks’ recent underperformance


Indian metal stocks have underperformed most global peers CYTD (year-to-date), and global brokerage Jefferies sees this as a buying opportunity and its top stock buy in the sector is Tata Steel, followed by Hindalco.

Jefferies highlighted that its covered metal stocks – Tata Steel, Hindalco and JSW Steel (JSTL) – are down 5-14% CYTD (Nifty 50: -2%), underperforming most global peers, which are up 5-34% during the said period. 

“While the overseas businesses of Tata Steel (Tata Steel Europe) and Hindalco (Novelis) disappointed in December Quarter results, stock underperformance to global peers with similar underlying exposures appears too harsh. For TATA in particular, the European business (TSE) contributes just Rs11/sh of EV to our price target of 145. We see the recent underperformance as a buying opportunity in Indian metals; our top pick is TATA, followed by HNDL,” it suggested.

The brokerage has Buy ratings on metal stocks Tata Steel shares with a target price of 145 apiece and Hindalco with a target price of 570. Meanwhile it has underperform (UNPF) rating on JSW Steel shares with target price of 470.

“China economic data is showing signs of recovery with manufacturing PMI rising to 11-year-high and property prices starting to stabilize. After 23% fall in CY22, China export steel price is up 14% in CYTD 2023. Asian steel spreads are still 10% below long-term average though, and we see scope for further expansion,” the note stated.

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 61.0-61.5K/ t in FY24-25E, broadly inline with spot,” Jefferies added.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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