Come Monsoon, and we sentimentally see weak sentiments building on Cement & Steel stocks. This time, we are seeing only such bias for Steel stocks, and not for Cement. But let's understand that all Ferrous Steel stocks are likely to present best or record PBT for Q1 of FY 22 in last over 30-32 quarters. Major companies falling in this category are SAIL, Tata Steel, JSW Steel, Jindal Steel, Tata Steel BSL, mainly large companies with steel making capacity of 5 MTPA to 16 MTPA. Other medium size steel makers will also have same fate, as commodity cycle revival will also be helping them.
It is true that during monsoon, lower offtake of Steel is seen, as new Pilling or RCC work is generally not seen being carried out, which need larger steel consumption. But come September, will see revival of Steel demand, by Auto makers, White Goods, Construction & Infrastructure, which will also lead to more price hikes by these Steel makers.
Also, during the second Covid wave, oxygen supply was diverted for medical reasons affecting production by approx 5% for the major producers duuring this period. So the incremental gains in profitability is setoff by this and hence was a one time blip than change in fundamentals. Even with this the number will be better or similar to previous quarter numbers.
So, take this as pause on Steel stocks buying and not the trend reversal for the sector.
This is not a Buy recommendation, while stock recommendations are provided exclusively to our paid members in the Member Zone.