Credit Suisse downgrades Tata Steel, JSW Steel, Jindal Steel & Power; shares fall

Of all four steel names, JSW steel is trading at the most expensive valuations. The expectation of elevated domestic iron ore prices would also hurt spreads, Credit Suisse said.

Tata Steel’s profit surge is iron-ore driven and with alto-steel price ratio near a two-decade low, Credit Suisse says it now moves to Hindalco from Tata Steel.

"After 58 percent outperformance CYTD, we downgrade our longstanding positive view on the steel sector as we see multiple risks to steel prices ahead," the brokerage house said.

As demand weakened during the second wave of lockdowns, Indian mills could not hike prices in line with regional prices. Indian steel prices are at an 18 percent discount to imports, a buffer which may not be enough if export prices follow the fall in China domestic prices, it added.

The stock prices of steel companies have seen a massive rally recently on the back of rising global steel prices amid strong demand.

Tata Steel shares jumped over 287 percent in one year and is up 69 percent YTD. JSW Steel surged over 289 percent in one year and 77 percent YTD. JSPL is up more than 266 percent in one year and 50 percent YTD.

The brokerage is of the view that the current surge in apparent demand is an extreme inventory cycle and not a super-cycle.

In its equity portfolio, the global brokerage firm has cut metals to Underweight from Overweight as P/B relative to the market is near 10-year highs.