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.
Meanwhile, China has shown signs of economic recovery, with manufacturing activity expanding in February. Jefferies' global strategist Chris Wood believes that the country's battered residential property market might have bottomed last quarter as secondary property market data continues to improve in major Chinese cities.
Further, global aluminum prices have surged 7% this year. The brokerage said Hindalco's India aluminum business is delivering well with global aluminum prices holding up, while Novelis' margin concerns are also alleviating.
Target Price, Stock Ratings
Hindalco Industries: 'Buy' rating with target price of Rs 800, a return potential of 16% over the previous close.
JSW Steel: 'Hold' rating with target price hiked from Rs 850 to Rs 920, a potential downside of 9% over the previous close.
Tata Steel: 'Buy' rating with target price hiked from Rs 166 to Rs 180, a return potential of 19% over the previous close.
Tata Steel, Hindalco, JSW Steel stock trade higher.
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