Analyst Call Tracker: Why are fireworks missing for JSW Steel even as China reopens

The China reopening theme has turned things around for the metal pack as demand expectations continue to soar high. However, in a wave of optimism for most metal counters, JSW Steel appears to be the only dark spot.

As per Bloomberg's Analyst Call Tracker, JSW Steel remained the stock that analysts on the Street were the most pessimistic about yet again in January. Out of the 32 brokerages covering the stock, 26 of them had a "sell" or "hold" rating. The number of Sell calls were at 19, more than double the number of Buy ratings.

In a stark contrast, another major metal company, Hindalco Industries emerged as the stock that garnered the maximum optimism from the Street. All 24 brokerages covering the stock gave it a Buy rating.

The optimism for Hindalco arises largely from the reopening of China, the world's largest importer of metals, a move that is expected to boost demand for the company.

But when it comes to the event that turned into a major upside trigger for Hindalco, a good question to ask would be why hasn't the same news lifted sentiment for another metal manufacturer, JSW Steel?

The answer to this question however, seems to be a little complex. It isn't that analysts are not optimistic of the fact that China's reopening will lift demand for JSW Steel.

"Even though the China reopening theme and the domestic push towards capital expenditure and Make in India is expected to boost earnings for JSW Steel, however, it is the high valuations of the stock that remain a concern for analysts," said Bhavesh Chauvan, Research Analyst - Metals, IDBI Capital and Markets.

"Steelmakers like JSW Steel and Tata Steel have had a strong run-up in the recent past while Hindalco Industries has been an underperformer. This has created a huge valuation gap between JSW Steel and Hindalco Industries," said Rajesh Agarwal, Head of Research, AUM Capital Markets.

It is for the aforementioned reasons that analysts are expecting Hindalco Industries to give stronger near-term returns than JSW Steel.

Also read: Hindalco tops optimism as China reopens, financials remain Street's top sectoral pick

At current valuations, JSW Steel appears to be much expensive, which is likely to cap its upside. However, in the longer run, as earnings for the steelmaker start moving upwards, primarily due to a strong domestic demand thanks to the government's push on capital expenditure, the stock will likely bounce back, Agarwal added.

Some analysts also feel it will be the strong demand from the domestic front that will be a stronger upside trigger for JSW Steel as compared to the reopening of China.

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