Steel stocks crack over 3% after CLSA downgrades of Tata Steel and JSW Steel
CLSA downgraded certain stocks with stretched valuations and weaker industry spreads compared to their nemesis. The Hong Kong-based brokerage downgraded JSW Steel and Tata Steel while reiterating its underperform rating for Jindal Steel & Power.
JSW Steel shares fell 3% to the day's low of Rs 818.50 on the NSE in the early trade. CLSA has downgraded the stock to 'Sell' from an earlier 'Underperform' rating while slashing its target price to Rs 730 from Rs 810. Today's correction comes on the back of a three-day rally. At 10:05 am, more than 14.27 lakh shares changed hands on the NSE with the total traded value at Rs 117.66 crore.
Meanwhile, Tata Steel was also downgraded to Sell from an earlier rating of Outperform. The global brokerage trimmed the target to Rs 135 from Rs 145 earlier.
As for Jindal Steel (JSPL), CLSA maintained an 'Underperform' rating but hiked the target price to Rs 840 from Rs 820. It said that JSPL is relatively better off given that the weaker industry spreads will be more than offset by the margin expansion projects.
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In a review note, CLSA said that valuations for steel stocks have risen while spreads are at a trough. The consensus estimates are not factoring in spread compression, it said, adding that the profit pool in India will likely incrementally move towards miners from converters as steel capacity addition picks up pace. A broad-based demand-driven stimulus in China is a key risk to its thesis,
