Jefferies, a prominent brokerage firm, has expressed optimism regarding the metal sector in India. They have reaffirmed their ‘Buy’ recommendations for both Hindalco and Tata Steel, while maintaining a ‘Hold’ rating on JSW Steel. The firm has also updated its target prices: Hindalco at ₹800, Tata Steel at ₹180, and JSW Steel at ₹920.

Metal Stocks Outperforming Nifty 50

This year, metal stocks have notably outperformed the Nifty 50 index by 15% to 20%, attributed to several key factors. Notable elements contributing to this growth include:

• Anticipations of an economic rebound in China.
• Expectations surrounding the implementation of safeguard duties on Indian steel imports.
• Robust pricing in the aluminum market.

Jefferies highlighted that Indian steel prices have increased by 5% since their lowest point in December, suggesting that safeguard duties could further enhance margins and valuations.

China’s Economic Recovery: A Catalyst for Metal Prices

The report from Jefferies indicates that signs of recovery in China’s economy are a significant driver of global metal prices. In February 2025, the Manufacturing PMI in China surpassed 50, signaling growth. Additionally, property sales in the country are showing signs of recovery after a prolonged decline since mid-2021.

Jefferies noted, “It appears that China’s residential property market may have reached its low point last quarter, as secondary home prices are on the rise.”

Aluminum’s Strong Performance over Steel

In the global market, aluminum prices have surged by 7% year-to-date, while steel prices have dipped by 3% in China. Jefferies remains optimistic about Hindalco, emphasizing the company’s strong performance in the aluminum sector, which is supported by stable global prices. They also mentioned that concerns regarding Novelis margins are beginning to ease.

Potential Boost for Indian Steel Prices

The brokerage sees an opportunity for further increases in Indian steel prices, especially if the Indian government implements safeguard duties on imports of Chinese steel. This strategy has already been adopted by countries like Vietnam and South Korea. For the fiscal years 2026-2027, Jefferies projects steel prices between ₹51,000 and ₹52,500 per tonne, slightly above current market rates.

Impact of Steel Price Changes on Earnings

Jefferies also highlighted the sensitivity of steel prices to company earnings. A hike of ₹1,000 per tonne could elevate EBITDA for Tata Steel and JSW Steel by 7% and 9%, respectively, with EPS potentially rising by 17% and 23%.

Conclusion: A Constructive Outlook for the Metal Sector

Overall, Jefferies is optimistic about the metal sector in India, reiterating their Buy ratings for Hindalco and Tata Steel due to attractive valuations and promising volume growth prospects. Conversely, JSW Steel remains on ‘Hold’ status due to its relatively higher valuation of 2.8x FY26E PB.

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