The introduction of a 15% export duty on most steel products, starting from zero, and an increase in levies on iron ore and pellets to 45-50% propelled a sharp drop in stocks of metals on Monday.
Shares of Tata Steel, JSW Steel, Jindal Steel, SAIL and NMDC rose 20% in intraday trading.
Analysts have now turned pessimistic, especially on metals companies, as recent policy moves are poised to undermine their operating performance going forward.
According to Bhavesh Chauhan, Research Analyst, IDBI Capital, a negative export duty hike for the sector and a 15% duty hike means lower export realization. Exports from steel companies account for between 10% and 25% of sales, Chauhan said, adding that margins, already under pressure, are expected to shrink further. Downgrades will occur, an evaluation is awaited to see if any advantage remains.
Some brokerages have already begun downward revisions to major steel stocks as higher export duties are expected to lead to a sharp correction in domestic steel prices.
CLSA, for example, has reduced domestic steel price estimates by 8-10%. Due to lower steel prices, the brokerage company reduced the Ebitda estimate of steel companies by up to 24%. He sees no near-term upside catalyst for the sector, other than stimulus in China.
ICICI Securities, meanwhile, pointed out that the political decision was extremely negative for the steel sector, expecting a widespread multiple downgrade for the industry. It also lowered its ratings for most metals stocks.
The brokerage globally assessed a likely impact of Rs 5,000-7,000/te on EBITDA for integrated steel players, while for non-integrated steel stocks like JSW Steel the impact may be 5,000 rupees/te.
“Due to the measures announced by the government, a short-term correction in steel inventories is imminent. We believe that the repercussions of these government decisions will be widely felt in all sectors of the industry,” says Motilal Oswal .
According to Motilal Oswal, increases in export duties can impact the valuation of the sector and the ability of companies to invest in long-term capacity growth.
On the contrary, the government has reduced the excise duty on petrol and diesel by Rs 8 and Rs 6 per litre, respectively.
Following this, Parbhudas Liladhar cut its FY23 EPS estimates for HPCL and BPCL by 56% and 40%, respectively, as high oil prices remain challenging.
According to the brokerage, the WTO’s ability to reduce high marketing losses will depend on the correction in crude prices, as high inflationary pressure will prevent significant increases in retail prices despite the excise duty cuts. [Parbhudas Liladhar]
Technical charts suggest BPCL shares may rebound until their new 52-week low remains intact.
The weekly chart of Hindustan Petroleum Corporation, meanwhile, is currently signaling a bearish trend. Indian Oil Corporation’s stock price is well positioned given its continued existence above the 200-day moving average level.
On Tuesday, the market debut of logistics player Delhivery will be watched closely, while in the primary market chemicals company, the Rs 808 crore IPO of Aether Industries will be open for subscription.
In addition, Adani Ports, Balkrishna Industries, Balrampur Chini, Grasim, Ipca Laboratories and Metropolis Health will be under investor watch ahead of their fourth quarter results. That aside, stock-specific action and global signals will dictate the market trend.