Tata Steel, Hindalco Top Metal Stocks For Jefferies On China Recovery, Likely Import Duties

Tata Steel Ltd. and Hindalco Industries Ltd. are the top choices for Jefferies among metal stocks that have ducked the broader slide in Indian equities this year.

The stocks have outperformed the benchmark Nifty 50 by 15-20%, driven by optimism on China recovery, expectations of safeguard duty on steel in India, and aluminum prices remaining higher.

Jefferies noted that Asian steel spreads are currently 20% below their long-term average, indicating room for expansion. Additionally, domestic steel prices have rebounded 5% from their December lows, and the imposition of safeguard duties could provide further upward momentum, helping margins and valuations.

India's steel imports remain high, and safeguard duties on Chinese imports could lead to price increases. Notably, Vietnam and Korea, the primary export markets for Chinese steel, have already imposed anti-dumping tariffs on Chinese imports. This raises concerns that Chinese steel imports into India may surge further without safeguard duties.

"Steel stocks are trading relatively more expensive, but valuations are likely to sustain, given healthy volume growth outlook and potential for safeguard duties," a note said.