If the Nifty continues to make lower lows, it may go down to the level of 5,450
The scrips, which would be shifted to the trade-to-trade segment include A2Z Maintenance & Engineering Services, Bartronics India, Consolidated Construction Consortium, Khaitan Electricals, KS Oils, Triveni Engineering & Industries and Uttam Sugar Mills, among others
Indian steel stocks have been amongst the worst performing steel stocks globally during last 3-6 months on the back of weaker domestic demand environment and deterioration in profitability, says Nomura Equity Research in its Quick Note
As per JPC (Joint Plant Committee), Indian steel demand grew by 3.3% in FY13. Steel demand growth was down 4.2% year-on-year during March 2013. The demand growth has been weaker than Nomura Equity Research’s expectation (in its Quick Note on steel) of 4.5%-5% growth. Indian steel consumption in FY13 increased to 73.3million tonnes (up 3.3% year-on-year), while finished production has grown by 2.5% year-on-year to 77.5mt. While supply of steel has been impacted by iron ore issues in Karnataka, the demand has remained very weak resulting in pricing pressure faced by the steelmakers.
Indian steel stocks have been amongst the worst performing steel stocks globally during last three to six months on the back of weaker domestic demand environment and deterioration in profitability, according to Nomura Equity Research. Nomura believes that the valuations are factoring in the current weakness in operating environment to continue in perpetuity.
Tata Steel is Nomura’s top pick in the Indian steel space given that profitability should improve driven by:
(a) lower coke purchases with the ramp-up of captive coke oven batteries;
(b) commissioning of CR mills to improve product mix; and
(c) ramp-up of 2.9mtpa expansion which would improve volumes as well as reduce cost of production on stabilization.
India imported 7.9 mt of steel during FY13 (up from 6.9 mt in FY12), while it exported 5.2 mt of steel (up from 4.6 mt in FY12). India imported 706kt (versus 547kt in March 2012 and 619kt in February 2013) of steel during March 2013, while exports were also up to 496kt (versus 340kt in March 2012 and 613kt in February 2013). Nomura analysts have shown in the graph below that imports are higher in spite of weaker demand in the country.
Indian steel prices are currently trading at a discount of 4%-5% to import parity (from highs of 8%-10% last month). Global steel prices have come down by 5%-6% during last one month while domestic steel prices have remained largely flat resulting in discount to import parity coming down from 8%-10% to 4%-5% (Please see graph below).
Near-term weakness in steel demand is expected to continue as reflected in weaker auto volumes as well as overall industrial activity remaining slow. As a result, Nomura analysts don’t expect a major improvement in steel pricing environment in India in the near term. Nomura expects discounts to remain in the range of 3%-5% to import parity.