UBS has upgraded its shares in steel shares – Tata Steel and JSW Steel – from ‘neutral’ to ‘buy’ as domestic companies of both, reported their highest operating profits in the December quarter. Brokerage has increased its target price for JSW from Rs 310 to Rs 500 and Tata Steel from Rs 415 to Rs 900. Shares of Tata Steel ended at Rs 704.95 and JSW Steel closed at Rs 423.15 on Thursday, almost unchanged from the previous day. Sensex and Nifty dropped more than 1% on Thursday.
“Steel recognition remains high through rising prices (between strong purchases and high costs of raw materials), strong domestic demand and high overseas prices,” UBS said in a report to consumers. “We expect higher marks in FY22, as well as a gradual familiarity as new capacity come online.”
The shares of JSW received 202% and Tata Steel shares increased by 178% from April 3, 2020 – when both shares began to recover. UBS says India’s steel sector has risen sharply from Covid-19 interference with domestic demand led by the automotive industry and the government’s pipeline infrastructure.
“While JSW’s stock has come together in line with the sector, we are developing JSW to buy, due to its position as a pure play in the Indian steel cycle, as well as its plans to expand the project / margin improvement initiatives that is nearing completion,” UBS said.
“For Tata, although the stock has recently surpassed the sector, the average rate of inflation is historically lagging behind, and with the integration of European operations and the integration of domestic iron-ore, we have also upgraded Tata to purchase,” the brokerage said.
