Buy Tata Steel; hold SAIL, JSW Steel: ICICIdirect.com

ICICIdirect.com's report on metal sector

For the current fiscal (FY14), the domestic steel sector has had a subdued start on account of the muted demand scenario. During the first two months of the current fiscal year, steel demand has registered negative growth (down 0.8 percent YoY), thereby adding to the woes of the industry. The slowdown in infrastructure spending coupled with a delay in implementation of capex plans has led to domestic steel consumption growing by merely 3.3 percent in FY13, which is the lowest in the last three years. The prevailing high interest rate regime domestically has also been contributing to the subdued economic activity. Going forward, due to the early onset of the monsoon season, we believe steel demand will stay subdued over the next two or three months. Accordingly, on the back of a muted demand scenario, we have reduced our volume estimates for steel majors - Tata Steel, SAIL and JSW Steel. We have also accounted for a drop in international coking coal prices, which were partially offset by a depreciating rupee. We have maintained our BUY rating on Tata Steel with a revised target price of Rs 321 and maintained HOLD rating on SAIL and JSW Steel with a revised target prices of Rs 52 and Rs 640, respectively."

Chinese economic data points add fuel to grim outlook: "The recent Chinese manufacturing PMI for June 2013 stood at 50.1, which is at the lowest level since September 2012 (49.8) reflecting the muted growth scenario in China. The slowdown in China, as reflected by weak manufacturing PMI, is on the back of tight liquidity ensured by Chinese central bankers to rebalance the economy from investment oriented to consumption driven. Chinese GDP growth also slowed down from the quarterly averages of 10 percent in the past to 7.9 percent in September 2012-December 2012 (Q4CY12) to 7.7 percent in January 2013-March 2013 (Q1CY13)," says ICICIdirect.com research report.

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