Metal stocks shine amid strong global cues; JSPL, JSW Steel jump up to 10%

In a sector update, Edelweiss Securities notes that China’s trade data and macroeconomic indicators for April indicate that the worst seems to be behind for the metals and mining players.
Shares of metal companies rallied on Tuesday amid positive global cues as more economies are re-opening post the Covid-19 lockdown. Additionally, encouraging quarterly numbers by some of the companies also boosted investor sentiment. 

At 11:15 am, the S&P BSE METAL index was trading over 2.7 per cent higher at 6,362 points with all the constituents in the green. Jindal Steel and Power (JSPL) was leading the charge with around 10 per cent jump at Rs 105.90 apiece, followed by JSW Steel (up 6 per cent), and Tata Steel (up 3 per cent).

In comparison, the S&P BSE Sensex was trading 0.63 per cent higher at 30,867 levels.

On the earnings front, Jindal Steel and Power (JSPL) on Monday reported a consolidated net profit of Rs 305.62 crore during the quarter ended March 31, 2020. The company had posted a net loss of Rs 2,713.34 crore in the year-ago quarter, JSPL said in a BSE filing. 

In a separate statement, the company said it produced 2.11 million tonnes (MT) of steel, including pig iron, in January-March 2020, up 5 per cent from 2.01 MT in the year-ago quarter. 

On the other hand, Sajjan Jindal-led JSW Steel reported a consolidated profit before tax of Rs 953 crore in March quarter, down 60 per cent from same period last year as revenues declined sharply on the back of weak demand scenario amid economic slowdown. READ MORE

In a separate development, Fitch Ratings has downgraded issuer default ratings (IDRs) of JSW Steel and Tata Steel to BB-minus from BB after completing a portfolio review.
Fitch has also downgraded Tata Steel UK Holdings' long-term IDR to B-minus from B. The outlook is negative. The agency has also downgraded JSW Steel's and Tata Steel's senior unsecured rating to BB-minus from BB.

Edelweiss Securities, in a sector update note, said that China’s trade data and macroeconomic indicators for April indicate that the worst seems to be behind for the metals and mining players. However, it will keep close tabs on data over the coming months.

"While April-20 has been reasonably better for China, indicating that economic activity post-Covid-19-lockdown is resuming, it remains to be seen if domestic demand sustains in subsequent months; else, the odds of exports picking up would rise. We will keep close tabs on emerging data points, particularly relating to demand," it said in a note dated May 18.  

Adding, "In the Indian context too, we find large longs players are better off as they do not face any threat of imports; on the contrary, they may gain market shares from marginal players." 

The brokerage has maintained JSPL (BUY/SO) as the top pick in the ferrous space.


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