Shares of domestic steel producers are poised for a turnaround, driven by renewed optimism from analysts regarding a potential increase in demand from China.
Brokerage firm Morgan Stanley has upgraded the ratings of JSW Steel and Jindal Steel and Power from 'equal-weight' to 'overweight,' while also raising Tata Steel’s rating to 'equal-weight' from 'underweight.' Meanwhile, Nomura India has initiated coverage on JSW Steel and Jindal Steel with a 'buy' rating, reflecting growing confidence in their market positions.
This positive sentiment has helped steel stocks resist the broader market decline, with shares of JSW Steel, Jindal Steel, and Tata Steel ending the trading day either flat or up to 1 per cent higher, even as benchmark indices fell more than 2 per cent. Over the past three months, JSW Steel has particularly stood out with gains exceeding 9 per cent, while Tata Steel and Steel Authority of India reported declines during the same period.
The optimism surrounding steel producers is largely attributed to recent measures announced by China aimed at bolstering its struggling real estate sector. These initiatives include lowering interest rates on home loans and relaxing restrictions on property purchases. As the world's largest consumer of steel, any stabilisation in China's economy and property market is expected to stimulate demand, enhancing sentiment not just in China but also in steel and raw material markets globally.
Despite the expectation of elevated steel imports into India in the coming months, local steel prices currently align closely with import prices, offering some resilience for domestic producers. However, analysts predict that earnings for steel companies will remain subdued in the September quarter, primarily due to weaker prices and demand. Jashandeep Singh Chadha of Nomura India notes that preliminary data indicates some seasonal weakness, but he remains optimistic about robust steel consumption continuing through 2026-27.
Looking ahead, the Indian steel industry is expected to remain in a favorable position, as the projected addition of 23 million tonnes of capacity between 2023 and 2027 will lag behind the growth in demand. The next phase of expansion for Indian steelmakers is anticipated to be driven by brownfield projects, which have the potential to enhance return ratios and foster long-term growth.
