Here is why analysts are betting big on the Metals sector
While Equirus expect weakness in the export market, they see the domestic market more than offsetting that weakness.
Metals is a high beta sector. As a result, when you see markets get a bit jittery, the Metal index corrects much more. However, that did not happen this week as few brokerages turned optimistic on the sector.
Equirus upgraded the Steel sector to overweight from their earlier rating of neutral. While they expect weakness in the export market, they see the domestic market more than offsetting that weakness.
Another key factor they highlight is that the demand-supply dynamics are going to turn favourable after more than a decade, as incremental demand is likely to be higher than production and that demand-supply mismatch is what they are betting on.
Normally, in a pre-election year, you would see higher demand for different kinds of steel. JSPL and SAIL are their top picks within the sector.
This upgrade cycle was started by Kotak Institutional Equities, after they upgraded Tata Steel to a buy rating citing favourable risk-reward. The upgrade came despite Tata Steel underperforming last year.
The brokerage now believes that domestic margin is likely to have bottomed out and earnings will also receive a boost as more capacity comes on stream. It also expects the worse in Europe to be over and an additional kicker will come from China as the spreads remain below mean.
Meanwhile, Jefferies does not only like the ferrous space, they also see a buying opportunity in some of the non-ferrous names like Hindalco. Tata Steel also features among the brokerage's top picks.
The brokerage has observed some green shoots in the Chinese data like their manufacturing PMI, property prices and inventory levels being at their lowest in four years on a seasonally adjusted basis. Additionally, Indian Steel prices are at a discount from the prices seen globally.
On the non-ferrous side Jefferies says aluminium prices are flat this year but thermal coal prices have cooled off and so the spreads have improved.
(Edited by : Hormaz Fatakia)
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