In a recent analysis of the metals and mining sector, Kotak Institutional Equities has issued updated recommendations for several prominent Indian steel stocks. The brokerage firm suggests investors consider selling shares of Tata Steel Ltd. and SAIL, while recommending 'Add' positions for Jindal Steel Ltd., JSW Steel Ltd., and NMDC.
Why Sell Tata Steel and SAIL?
Kotak's 'Sell' rating for Tata Steel and SAIL stems from concerns over weak growth visibility for these integrated steel producers, coupled with their current rich valuations. The firm's target price for SAIL is set at Rs 140, indicating a potential downside of over 20 percent. For Tata Steel, a target of Rs 180 suggests a single-digit downside from current levels.
Jindal Steel, JSW Steel, and NMDC: Top Picks
Conversely, Kotak views non-integrated steel producers like Jindal Steel and JSW Steel as offering a better risk-reward proposition. Both companies are highlighted as the brokerage's top picks in the sector. Kotak has assigned a target price of Rs 1,400 for Jindal Steel and Rs 1,425 for JSW Steel, implying double-digit upsides. NMDC also received an 'Add' rating with a target price of Rs 100.
Steel Price Trends and Market Outlook
Kotak acknowledges a seasonal blip in steel prices but believes further downside is limited. Data indicates that spot primary rebar prices have corrected by Rs 7,000 per ton, or 11 percent, from their April 2026 peak. In contrast, Hot Rolled Coil (HRC) prices have remained relatively stable, experiencing only a minor 2-3 percent decline, or Rs 1,600 per ton, over the same period.
The brokerage firm attributes the recent divergence in long and flat steel prices to be transitory. Domestic HRC prices currently trade at a 7 percent discount to China import parity levels, suggesting limited room for further declines despite seasonal weakness in the ferrous sector.
Expected Margin Improvement
Looking ahead, Kotak anticipates an improvement in margins for steelmakers sequentially. A significant portion of the 14 percent and 21 percent increase in trade prices recorded in Q4FY26 is expected to be fully reflected in the June quarter (Q1FY27). This positive impact on revenue is projected to more than offset any increases in coal and ore prices, leading to higher quarter-on-quarter margins for the firms under Kotak's ferrous coverage.