Credit Suisse Turns Bullish on In­dian Steel Stocks

The Economic Times - - Companies -

Mum­bai: Credit Suisse has tur ned bullish on In­dia’s steel com­pa­nies cit­ing bot­tom­ing out of in­ven­tory, weak­ness in the dol­lar, likely fis­cal stim­u­lus in China and limited sup­ply from the country. The for­eign bro­ker­age has sharply in­creased its price tar­gets for Tata Steel, JSW Steel and Jin­dal Steel and Power (JSPL), while up­grad­ing their rat­ings to ‘out­per­form’ from ‘ un­der­per­for m’ as th­ese stocks are un­der-owned.

Credit Suisse raised its price tar­get for Tata Steel from ₹ 180 to ₹ 440.

“We like Tata Steel the most given the up­side from the UK drag re­duc­tion and low­est bankruptcy risk,” said the bro­ker­age’s an­a­lysts in a client note ti­tled “The Big Cy­cle Turn?” dated April 19. Shares of Tata Steel rose 6.52% to close at ₹ 356 on Wed­nes­day.

Credit Suisse raised the tar­get price of JSW Steel to ₹ 1,600 from ₹ 540 and of Jin­dal Steel and Power (JSPL) to ₹ 85 from ₹ 56. It re­tained an ‘un­der­per­form’ rat­ing on state-owned SAIL with tar­get price of ₹ 35.

JSW shares rose 1.94% to close at ₹ 1,360 and JSPL gained 7.44% to close at ₹ 74.4 on Wed­nes­day. SAIL rose 4.4% to ₹ 46.40.

“We looked at the past few ral­lies for both Tata Steel and JSW Steel and the data gives us con­fi­dence that there is more to the cur­rent rally. On an av­er­age, ral­lies do last 9-12 months,” the bro- ker­age said. Shares of steel mak­ers have gained 23-53% in the last cou­ple of months. Credit Suisse said de­spite the re­cent run-up, en­ter­prise value (EV) of th­ese com­pa­nies have barely changed.

“Ral­lies for steel stocks are ul­ti­mately linked to prices, which are in turn driven by ei­ther a re­stock (in which case re­turns are more short lived) or a rise in de­mand (or the ex­pec­ta­tion of a rise in de­mand),” the an­a­lysts said. “What is even more in­ter­est­ing is that even within a down cy­cle, steel stocks bounce 35-100% be­fore cor­rect­ing again, i.e., mak­ing pro­gres­sively lower lows”.

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