Tata Steel rides metal rally to become second biggest firm in group

It accounts for 9.2% of group m-cap, highest in a decade

After a two-month lull, industrial metal and mining companies are again leading the rally on the bourses. The S&P BSE Metal index, which tracks the market capitalisation of the country’s top 10 metals and mining companies, rose 5.5 per cent on Thursday, beating the benchmark Sensex, which was up 0.4 per cent.

With this, the metal index has risen 10 per cent in the last five trading sessions, compared with a 0.3 per cent decline in the Sensex. The performance of metal stocks has been impressive since the outbreak of Covid-19. The BSE Metal index has jumped 272 per cent since March 2020 against a 79 per cent rally in the Sensex. (See adjoining charts)

And Tata Steel has been a prime beneficiary of investors’ renewed interest in metal stocks. The steel major’s share price has risen 18 per cent over the past week and it has added nearly Rs 27,000 crore to its market capitalisation. The company was among the top performing large-cap stocks on Thursday and closed with gains of 6.9 per cent. Hindalco was, however, the top index gainer on Thursday and was up 10.2 per cent.

Thanks to this rally, Tata Steel has continued to outperform other listed Tata companies. The steel major is now the second biggest company in terms of market capitalisation behind Tata Consultancy Services (TCS) and ahead of Titan Company. Tata Steel now accounts for 9.2 per cent of the combined market capitalisation of all Tata listed companies — the highest in a decade and up from record low of 3.3 per cent at the end of March 2020, and 5.6 per cent at the end of March 2021.

Tata Steel’s market cap has risen nearly six times from Rs 31,000 crore at the end of March 2020 to around Rs 1.75 trillion on Thursday. Over this period, the group companies’ combined market cap doubled from Rs 9.23 trillion to around Rs 19 trillion on Thursday. This is a sharp turnaround in the fortunes of Tata Steel, which was pushed to the fifth spot in terms of market cap in the group two years ago.

Market capitalisation of listed subsidiaries of the group’s major holding and operating companies has been excluded to avoid double counting.

Global factors

Analysts attribute the current rally in metal stocks, including in steel, to a cut in export subsidy on steel by China. This, many analysts believe, will raise the export price of Chinese steel producers, raising the price realisation and profit margin of Indian companies. China is the world’s top steel producer and consumer, accounting for nearly 60 per cent of the global steel market.

Investors’ optimism around steel stocks has also been boosted by the latest decision by the US Federal Reserve to maintain the status quo and not raise rates. “This means the US Fed will continue its bond buying programme, increasing liquidity in the markets at a steady rate. A significant portion of this money is being invested in metals and mining stocks globally as the sector is right now a top reflation trade for investors and traders,” says Dhananjay Sinha, managing director and chief strategist at JM Financial Institutional Equity.

Metal stocks have also benefited from poor earnings outlook for banks, non-banking finance companies, and FMCG companies, which were investors’ favourites. The banking and the FMCG index has underperformed the broader market in 2021, leaving metals and IT stocks to do the heavy lifting.

Sentiment was also boosted by better-than-expected earnings growth of JSW Steel in the June quarter – it reported its highest quarterly profits and operating margins.