Metal stocks shine; Tata Steel, Hindustan Copper, SAIL surge up to 5%

The key steel consuming sectors are expected to perform well in FY24, supported by a rise in infrastructure spend by the Government and gradually improving semiconductor supply

Shares of metal companies were in focus on Friday as they rallied up to 5 per cent at the bourses in Friday's intraday trade on strong underlying demand along with healthy growth momentum.

The BSE Metal index hit a 52-week high of 6,844.80, gaining 2.7 per cent in the intraday trade. The index had hit a record high of 6,919.6 on January 18, 2023. At 10:26 am, the index was the top gainer among sectoral indices. In comparison, the Nifty 50 was up 0.40 per cent at 19,328.

The BSE Metal index, too, hit a fresh 52-week high of 22,550.47 in the intraday trade. It hit a record high of 23,743 on April 11, 2022.

Tata Steel, Hindustan Copper, Steel Authority of India, Jindal Steel and Power (JSPL), and Hindalco Industries advanced between 3 per cent and 5 per cent. Of these, Tata Steel (up 5 per cent at Rs 128.65) and JSPL (up 4 per cent at Rs 713.70) hit their respective 52-week highs in the intra-day trade today.

Analysts expect the key steel consuming sectors to perform well in FY24, supported by a rise in infrastructure spend by the Government, and gradually improving semiconductor supply. High capex allocation in key steel consuming sectors such as railways, national highways and housing is expected to drive steel consumption.

"Indian steel demand is expected to be robust and grow by 6.2 per cent in FY24 supported by strong GDP growth forecast, private consumption, and Government expenditure. India's capital goods sector is also expected to benefit from the momentum in infrastructure and investment in renewable energy. Automotive and consumer durables are expected to maintain healthy growth driven by sustained growth in private consumption," Tata Steel said in its FY23 annual report.

Integrated Steel Players will continue to add capacity in the current financial year, and utilisation levels are expected to remain healthy at ~80 per cent. Net export position is expected to strengthen with the removal of export duty, the company said.

According to analyst at Prabhudas Lilladher, Indian steel companies are expected to add ~22mt of capacities over the next two years, and drive volume growth. "However, near-term global demand is muted led by weaker China and developed nations struggling from inflation and higher interest rates, both peaking out," they said.

As Chinese GDP growth is expected to be stimulus and consumption driven, demand recovery will be slow and steel prices may bottom out as the industry is making losses. With curtailed production in H2-FY24, the brokerage firm expects pricing to get support and thereby Indian players would be ultimate be the beneficiaries of the same.

Meanwhile, with improved supply conditions, coking coal prices are expected to moderate and drive Ebitda margin improvement for steel players.

"We believe JSW Steel, JSPL and Tata Steel are well placed to benefit from upcoming capacities. With GoI’s increasing shift towards using stainless over carbon steel, usage has increased in India benefiting Jindal Steel. Hindalco is biggest beneficiary of gradual recovery in developed nations driving CAN sheet volumes. NMDC is improving its focus on volumes while National Aluminium & SAIL would be pure play on prices," the brokerage firm said.