Why is JP Morgan so positive on Tata Steel?

JP Morgan has set a price target of Rs.1,850 for Tata Steel which is approximately 52% above the current market price of Rs.1,211. JP Morgan also happens to be positive on SAIL with an aggressive buy target of Rs.165; again an upside of more than 50%. One of the reasons given by JPM is that steel stocks underperformed the indices by 11% to 15% in last 2 quarters. Hence downside risks like China demand and input costs were priced in already.

JP Morgan is of the view that domestic steel demand in India is seasonally very strong in March and June quarters, which should be favourable for the steel companies in their mean reversion to higher levels. Also JPM believes that EBITDA / tonne had peaked out in Jun-21 and that has corrected sharply lower making a case for a bounce. Also the worse of the coking coal price spike was over. In short the worst may be over for steel.

Should you buy steel stocks. You need to be cautious. It can still be a good proxy for the India recovery story but don’t bet too hard on commodities when the global situation is in a state of flux.