Steel Stocks Outlook: Seen down next wk as inflation fears rise

[B. Karthick]

Steel Stocks Outlook: Seen down next wk as inflation fears rise
Saturday, Jun 28

Unrelenting inflation and spiralling crude oil prices are
likely to weigh on the markets and pull down most stocks, including
steel.
Despite a series of monetary and fiscal measures, there are no
signs of the inflation rate coming down that is currently at a 13-year
high of 11.42%.
In fact, it is likely to remain in double-digits for some time,
even if
prices stabilise at the current levels, because of the low base
effect,
Subhashis Gangopadhyay, advisor to Finance Minister P. Chidambaram
said.
Meanwhile international crude oil prices touched an all-time high
of
$142 per bbl today, accentuating the case for a sustained rally in
commodity prices globally.
It is not a great time for steel companies. Interest rates are
beginning to harden, and this going to hit demand for steel from
automobiles, construction and real estate, and consumer durables
industries.
Shares of steel companies will reflect the weak sentiment in the
markets.
This week, shares of leading steel companies fell on the bourses.
The decline was led by Jindal Steel and Power Ltd., which has risen
sharply in the last one year.
Industry bellwethers Steel Authority of India Ltd. and Tata Steel
Ltd.
also fell 6.5% each during the week.
There is positive activity in Tata Steel and SAIL, but it still
may not
be able to pull them out of the current mess.
Tata Steel has an aggressive expansion plan for raw material
assets, and funding these plans could lead to some dilution of
earnings, which is a concern for the stock.
We says that steel shares may revive after July, when they plan to
raise product prices. Currently they have kept prices on freeze to
help check inflation.

Week-on-week closing prices of key steel companies' shares, in
rupees, on National Stock Exchange:

Company Closing Level Closing Level % Change
Jun 27 Jun 20

Steel Authority 144.20 154.15 - 6.5%
Tata Steel 726.75 777.40 - 6.5%
JSW Steel 981.45 994.00 - 1.3%
Jindal Steel & Power 1,843.60 2,011.75 - 8.4%

Nifty 4136.65 4347.55 - 4.9%
Sensex 13802.22 14571.29 - 5.3%

End

B.Karthick,
Research Analyst.