Steel Stocks Gain on Import Curbs, Banks Also Shine
Steel stocks gained on Monday after the government set a minimum price for imports of 173 steel products to protect the domestic industry from cheaper imports. This is the first time such a step has been taken in over 15 years to protect the domestic industry. Banking stocks also advanced due to its substantial exposure to this sector.
The floor price on steel imports will be valid for six months.
Analysts say that the measure will reduce the volume of steel imports, thus benefitting the domestic steelmakers. However, domestic prices are not expected to rise significantly because of the weak steel demand in the country. According to brokerage Goldman Sachs, minimum import prices could lead to 8-18 per cent rise in domestic steel prices. However, all of this price rise is not expected to be passed on the customers due weak domestic demand, say analysts. Goldman Sachs also said that improved margins of domestic steelmakers from higher prices are factored in to some extent into the stocks.
G Chokkalingam, founder of Equinomics Research & Advisory, said the move will benefit domestic steelmakers like JSW Steel, JSPL more than Tata Steel which has major overseas operations. But Mr Chokkalingam is not too positive on the sector due to weak demand outlook and leveraged balance sheets of most of the companies in the sector.
The steel industry had been lobbying the government to take more steps to protect their margins after a hike in the import duty last year failed to cut shipments from China. India is the third largest steel producer in the world, manufacturing 90 million tonnes of steel annually. But the industry says it has seen a hefty squeeze in margins due to an onslaught of cheap imports from China, as well as Russia, Japan and South Korea. Steel imports had risen 42 per cent in the first half of this fiscal year to nearly 6 million tonnes.
Among frontline steel stocks, Tata Steel, SAIL, JSW Steel were up between 1 per cent and 2 per cent. JSPL however gave up early gains to slip nearly 2 per cent. Deutsche Bank has maintained a buy rating on JSW Steel.
Some banking stocks, particularly PSU ones, were in focus today due to their significant exposure to the steel sector. SBI, which has a 7.4 per cent exposure to the steel sector of its total loan book, rose 2.4 per cent to Rs. 172. Other PSU names like PNB, Bank of Baroda and Canara Bank rose between 1 per cent and 2.5 per cent. Mr Chokkalingam said he expects the government to announce further measures for infusing capital into the PSU banks in the forthcoming budget.
Among private banks, ICICI Bank, which has a 3.7 per cent exposure to steel sector, edged up nearly 0.50 per cent to Rs. 210.
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Source:Ndtv
