Metal sector: ICICI Securities upgrades Tata Steel, JSW Steel to ‘Buy’; check top picks in the sector

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Also Read: Stocks to buy: HDFC Securities recommends HG Infra and Styrenix as its fundamental stock picks Additionally, after 30 years, China’s role in world steel consumption is expected to diminish and India to account for bulk of steel consumption growth from CY20-25E. While China’s steel consumption may progressively fall from peak levels of CY20 by 110-120 mt, in case of India it is likely to grow by 66 mt by CY25.

“As per our analysis, the link between steel prices of India and China has gone down post Covid-19 due to supply-chain issues, localisation of steel industry and strengthening domestic consumption in India as compared to decline in China. In our view, while India is unlikely to hit either the same pace and quantum of steel consumption growth as China in CY05-CY14, the consolidation in the domestic steel industry has already taken place with four large players and ArcelorMittal/Nippon Steel looking to expand capacity," ICICI Securities said in a report.

The domestic steel sector is entering a period of capacity increase sans debt growth. Additionally, the bulk of expected capacity increase is brownfield in nature, resulting in progressively improving RoE.

Also Read: Stocks in focus: Ruchit Jain of 5paisa recommends buying these two stocks today “Globally, we are witnessing an increase in protectionism and resource nationalism, resulting in price and demand localisation of steel, unlike non-ferrous, where price is still determined by the prevailing LME prices. Hence, the sector is expected to trade at higher multiples vs past.

In particular, we may see higher P/BV multiple as RoE and capacity utilisation improve," it said. ICICI Securities believes JSW Steel is best placed to reap the benefit of consumption