Govt measures, global demand to boost metals biz; these 4 stocks can return up to 54%

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26 Aug, 2025 12:21

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The many tailwinds seen by the metals sector like cut in global capacity of steel & aluminum, deficit in zinc, government measures (anti-dumping duty, increase in infrastructure spending) are likely to keep it on investors' radar -- at least in first half of current financial year.

In its latest report, CLSA said a confluence of positive factors should drive a rerating of Indian steel stocks.

"Confirmation of anti-dumping duties for the next four years has put a floor to Indian steel prices. Indian steel demand-supply is on the cusp of a multi-year tightening phase given the lack of new capacity additions. Steel demand outlook is also improving with the government’s affordable housing programme and likely start of an investment cycle by FY19," the brokerage house said.

The thrust on infrastructure is already visible in the Union Budget 2017-18 with a record allocation of Rs 3.96 lakh crore (13.5 percent YoY).

ICICI Securities feels, globally, on the back of stricter environment norms, over a medium-term horizon there could be a cut in global capacity of steel, aluminum (especially in China, albeit at a gradual pace), which is likely to support global prices. This augurs well for the domestic metal sector, it said.

The brokerage house expects zinc prices to firm up from current levels given the global market for refined zinc metal is expected to remain in deficit in CY17.

In April 2017, the International Lead and Zinc study group (ILZSG) forecast for CY17 suggests the deficit in refined zinc metal market is likely to increase to around 226 KT compared to a deficit of 196 KT in CY16. The refined zinc market has been in deficit in three out of the last five years (CY13, CY14 and CY16). In the past, zinc deficit has augured well for global zinc prices.

Here are four metals stocks that look attractive:-

Picks from CLSA

JSW Steel | Target Rs 300 | Upside 54% | Period 1 year

CLSA upgraded the stock to buy from outperform and increased target price to Rs 300 (from Rs 185 earlier), citing healthy earnings growth.

The brokerage house believes it will be a big beneficiary of improving Indian steel industry pricing and demand-supply outlook in the coming years.

The 5mt Dolvi plant brownfield expansion by March 2020 will boost volume and earnings growth over FY21-22 and should be highly value-accretive given its low capital cost, it said.

CLSA expects JSW's valuation multiples to expand given improving pricing/margin visibility, tightening Indian steel demand-supply beyond FY19 and strong volume growth post FY20.

With anti-dumping duties on HRC & CRC steel getting extended until August 2021, it is now virtually certain that import protection for the Indian steel industry is set to continue. This greatly improves visibility on JSW's margins over FY18-20, it feels.

Tata Steel | Rating Buy | Target Rs 710 | Upside 45% | Period 1 year

CLSA said outlook for Tata's India business is strong, with healthy volume growth expected from the Odisha plant and continued price protection by the government.

Tata Steel Europe (TSE) outlook has also brightened with sale of loss-making units, price protection and benefits of product-mix/cost reduction initiatives, it believes.

Probability of a hive-off of TSE into a JV with ThyssenKrupp (TK) has risen, which could drive a significant de-risking, according to the research house.

This, together with improving Indian steel industry pricing and demand-supply outlook, could drive Tata’s valuation multiples higher, CLSA feels.

Picks from ICICI Securities

Hindalco | Rating Buy | Target Rs 238 | Upside 20% | Period 6 months

Hindalco's management continues to focus on its strategic initiative of deleveraging the balance sheet. Total repayment of Rs 5,536 crore till date has resulted in significant improvement in consolidated net debt/EBITDA of 3.74x as on March 31, 2017 from 6.29x in the prior year. In the balance part of FY18, the company chalked out debt repayment plan of around Rs 2,200 crore (paid largely through internal accruals).

Thus, going forward, deleveraging coupled with low capex is likely to impart strength to the balance sheet in the medium term, which augurs well for the company, ICICI Securities feels.

Hindalco delivered a steady performance throughout FY17, marked by higher volumes and realisations from both aluminium and copper segment. Further, a strong performance of Novelis driven by increased automotive shipments remained a highlight for the year.

Based on technical observations, ICICI Securities expects the stock to resolve higher from four and half month of trading range (Rs 200-180) and head towards Rs 240-250 over medium term.

It believes the current consolidation on price front, which is nearing its conclusion, offers fresh entry opportunity for medium term investors.

Hindustan Zinc | Rating Buy | Target Rs 275 | Upside 18% | Period 6 months

Hindustan Zinc, the leading miner & manufacturer of zinc and lead in India, has a huge reserve base, which provides strong earnings visibility.

"Its integrated business model ensures steady cash flows, which reiterates our positive stance on the company," ICICI Securities said.

Among all major base metals, zinc is the best placed backed by healthy fundamentals. HZL has strong balance sheet, healthy cash flow, lower CoP (cost of production) net cash status and healthy dividend yield which augurs well for the company, it said.

HZL reported healthy performance for Q4FY17 on the back of healthy realisations, higher sales volumes and lower cost of production.

Based on the technical observations, ICICI Securities believes the secondary price correction in the stock has approached maturity. The stock is attractively poised above the key value area, thereby providing a good entry opportunity for medium term investors to accumulate the stock for the next up move within the larger degree uptrend.

It expects the stock to resolve higher from here on and retrace at least 50 percent of the last falling segment (Rs 327 to Rs 227), which provides upsides towards Rs 277 levels over the coming months.