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PrintTata SteelBSE 1.99 % has rallied 26.7 per cent as compared to over 5 per cent fall in the benchmark index so far in the month of August. The rally in most of the metal counter is seen on the back of sharp depreciation in rupee and improvement in global economy.
Tata Steel rallied from a closing price of Rs 215.70 observed on July 31 to Thursday's (August 22) closing price of Rs 273.30 - translates into sharp 26.70 per cent rally in less than a month's time, considering the fact the stock has plunged nearly 36% so far in the year 2013.
So after a sharp pull back rally, should investors or traders book profits, considering the fact that the stock is down 36%?
The BSE metal stocks index has underperformed the Sensex by ~30% YTD. Metal stocks are high-beta and the sector has tended to underperform the wider market during falling markets.
Well, most analysts are of the view that holding metal stocks, including Tata Steel is better option rater than booking profits as the sector is likely to outperform other sectors in near term.
In the past metals stocks have been among the worst performers among the large caps in the last one year. Apart from drop in metal prices following slowdown in China, shares of metal companies have been hurt by regulatory headwinds across projects.
Apart from above given factors, slowdown in the Indian economy has also weighed on the sector. However, analysts at top brokerage firm are of the view that the underperformance of the sector is over and most of them have upgraded their target price and rating on the sector.
"We are changing our underweight stance and turning overweight on the Indian metals sector as we believe that rupee depreciation benefits for the sector can be substantial going forward," Nomura Equity Research said in a note on Thursday.
"The improvement in the global economy alongside a much-weaker rupee makes for a powerful tailwind for metal companies' earnings, in our view," added the report.
The global investment bank has added Tata Steel to the long-only basket while keeping with a 12-month target price of Rs 443, which translates into an upside of 78 per cent, from Wednesday's closing price of Rs 247.95.
Earlier in the month of August, Tata Steel reported 90.51 per cent growth in consolidated net profit at Rs 1,139 crore for the quarter ended June 30, largely due to significant decline in tax outgo.
The Q1, 2013-14 net sales of the company were however down 3 per cent at Rs 32,550.21 crore due to subdued global steel demand. It had reported net sales of Rs 33,547.73 crore in the Q1, FY'13.
"In the metal space, the trend is surprising because and is primarily because of two factors: one is rupee depreciation and positive data from China and Europe," said Mahesh Patil, Co-CIO, Birla Sunlife MF in an interview with ET Now.
"The metal prices are back to 2008 highs in rupee terms - where stocks were down almost 50 per cent from those levels, there is great value over here and we have seen some positive signs coming in from Europe," he added.
Patil is of the view that more recently, data from China was positive and despite valuations being extremely beaten down, we are seeing some rally in these stocks at this point in time.
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