homemarket Newscommodities NewsBullish on metals space; expect higher levels on Tata Steel: Rakesh Arora
Bullish on metals space; expect higher levels on Tata Steel: Rakesh Arora
The Nifty Metal index saw a big slip yesterday as fears of China's Evergrande Group causing a global contagion and nervousness ahead of the US Fed meet kept markets on edge. Rakesh Arora, founder, Goindiastocks.com, spoke with CNBC-TV18.
Arora said, “I don’t think that the Evergrande issue will blow out. The Chinese government had laid out three guidelines to reduce credit in the property sector, and it's actually playing out on those guidelines.”
Sharing his rationale behind being bullish on the metals sector, Arora said, “One is that despite the slowdown in China, and this property slowdown has been going for almost 15 months, and now one is seeing some green shoots because the line purchases in China is actually increasing and so, we could probably be at the bottom of the Chinese property market slowdown.”
“The moot point here is that the Chinese government has been cutting production for environmental reasons, etc. So, there's no oversupply falling back into the rest of the market. Therefore, there is no real pressure and so the steel prices have not really corrected, even other metals are actually holding up pretty well. The second point, which makes me very bullish is that in the last 12 months, there has been such big rally, that most of the Indian steel companies and the metal companies have deleveraged significantly. There are no more of the same leveraged companies we had prior to COVID and now they are at a much stronger footing. If one were to incorporate that into the valuations of the companies, then companies are still trading at attractive valuations, even on sustainable margins and not on the current margins that are extremely high. So even on sustainable margins, because the deleveraging has been so fast, marketcap movement has not kept pace, people have got worried about the run but look at the debt reduction, the debt reduction has been even more severe,” he explained.
“The final point is that the rest of the world is seeing strong support, both from fiscal stimulus as well as the monetary support. So demand is not going anywhere. Therefore, if one were to combine all this then it is a market to buy on dips, and there is no change in that strategy,” he added.
On Tata Steel, Arora said, “If one were to look at deleveraging then Tata Steel is making Rs 35,000 per tonne, which is equivalent to payback of a steel plant in two years. We have never seen these kinds of rallies. The market is yet to digest the deleveraging part of these companies. So, even when I assume that Tata Steel will go back to Rs 15,000 per tonne margin from the current Rs 35,000 per tonne, I can see some upside. Therefore, nothing to worry about in terms of valuations. Looking at 12-months forward, if the question is- will the stock be higher from here, it will definitely be higher.”
For the entire conversation, watch the video
(Edited by : Dipika Ghosh)
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