Credit Suisse has turned 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 'underperform' as these stocks are under-owned.
Credit Suisse raised its price target for Tata Steel from Rs 180 to Rs 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 Rs 356 on Wednesday.
Credit Suisse raised the target price of JSW Steel to Rs 1,600 from Rs 540 and of Jindal Steel and Power (JSPL) to Rs 85 from Rs 56. It retained an 'underperform' rating on state-owned SAIL with target price of Rs 35.
JSW shares rose 1.94% to close at Rs 1,360 and JSPL gained 7.44% to close at Rs 74.4 on Wednesday. SAIL rose 4.4% to Rs 46.40. "We looked at the past few rallies for both Tata Steel and JSW Steel and the data give us confidence that there is more to the current rally. On an average, rallies do last 9-12 months," the brokerage 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".
