Brokerage house Deutsche Bank raised its price target on Tata Steel and JSW Steel by 38% and 21%, respectively, as it expects the sector to benefit from the government's focus on building infrastructure and reviving rural demand.
The brokerage house expects domestic steel demand to grow 8-10% in FY18. Sales had remained subdued over the past couple of years, in part due to weak monsoons that hurt the rural economy. Cheap supplies from countries such as China was another factor weighing on domestic steel companies.
There has been a strong recovery in domestic steel prices post-imposition of the MIP in February this year.
The brokerage firm increased Tata Steel's price target following the recent announcement regarding the potential sale of loss-making UK assets which is seen as a long-term positive. However, the near-term stock price impact will be determined by deal dynamics, potential shutdown and asset transfer costs, it said.
JSW Steel remains the brokerage's “preferred pick” in the sector. The company is likely to benefit from volume ramp-up through its recently commissioned 4 million tons (mt) capacity.