Steel Stocks Outlook: Down next week on inflation concerns

[B. Karthick]

Steel Stocks Outlook: Down next week on inflation concerns

Shares of steel companies are likely to fall further next week
on concerns that rising inflation could force the Reserve Bank of
India to raise interest rates, adding to the already soaring costs of
companies.
Headline inflation rate, as measured by the Wholesale Price Index,
rose to 8.24% for the week ended May 24, and is all set to cross the
9% mark when the recent hike in prices of diesel, used by commercial
transport vehicles, reflect on prices of goods.
Rating agency CRISIL estimates that the rise in prices of auto and
cooking fuels will have a total impact of 95 basis points on headline
inflation.
"The fear over inflation prevails, and one increasingly gets the
sense
that the government is getting restless about it. I expect them
(government) to take some harsh measures now, and a hike in interest
rates is an eminent possibility.
Urging the Reserve Bank of India to take a "balanced view" of the
situation, industry chamber FICCI said: "The continuous tightening of
the monetary policy over the last one year has taken a toll on
industrial
growth...any further tightening policy at this juncture would further
depress the performance of the industrial sector.
Analysts said rise in interest rates could be particularly fatal
to the
steel sector, as it will stifle growth in automobile and real estate,
two of
steel industry's largest clients.
A variety of factors are conspiring to pull down industrial
growthan.
Experts said slowing industrial activity will pull down steel
demand
significantly.
Reflecting the mood, most steel shares fell this week. Jindal
Steel and Power and Tata Steel led the decline, each sliding over 8%.

Week-on-week closing prices of key steel companies' shares, in
rupees, on National Stock Exchange:
.
Company Closing Level Closing Level % Change
Jun 6 May 30
.
Steel Authority 153.55 164.95 - 6.9%
Tata Steel 824.15 902.15 - 8.6%
JSW Steel 1,083.65 1,136.10 - 4.6%
Jindal Steel & Power 2,155.85 2,351.00 - 8.3%
.
Nifty 4627.80 4870.10 - 5.0%
Sensex 15572.18 16415.57 - 5.1%
.
End

B.Karthick,
Research Analyst