Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Steel: Eyeing 2003 - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jan 15, 2003

    Steel: Eyeing 2003

    70%, 100% and 200%! These are the returns an investor could have made in 2002 by investing in Tata Iron and Tata steel (TISCO), Steel Authority of India (SAIL) and Essar Steel respectively. Compare this to the BSE-Sensex return of 3.5%. Here is a sector that has outperformed the index in a big way.

    Tisco : Leading the way

    However, 2002 is over and now the question in an investor's mind should be, what next? Will the prices continue to improve or stay at current levels? Will the volumes growth be as impressive as it was in the year 2002? Will the demand continue to show signs of improvement or stabilize at the current levels? In short, will the steel stocks be able to outperform the markets yet again?

    The current scenario seems to suggest that the next two quarters could see strong performance, which might start to stabilise in the second half of 2003. But the average performance of the sector as a whole, at the end of the year, would be good. This optimism towards the steel sector can be backed by various developments taking place.

    SAIL and ESSAR : Also in favour

    The government has set an optimistic growth target (8%) for the economy. Though the past track record fails to enthuse such confidence, it must be said that the government's focus on infrastructure development (roads, railways, ports, airports, irrigation and power) is gearing up the country towards an 8% growth in the long term. Steel, being a core sector, would be immensely benefited by higher economic growth.

    There has been a sustained rise in steel prices since early 2002. This trend has continued in the New Year too, with all major players announcing price hikes in the very first week of the year. Indications are that another price hike could be in the pipeline. The price hikes so far have taken place on the back of firm steel prices in the global markets. Higher current prices and probable price hikes mean that the current strong performance of the steel companies is likely to be maintained at least for the next two quarters.

    The government has also lend a helping hand to the steel sector by approving a financial package for some steel companies which includes waiver of penalty on loan defaults, conversion of portion of debt from financial institutions (FIs) to equity and a reduction in interest rates. The government is of the view that such steps would help the steel companies turnaround faster.

    At the international level too, positive developments are taking place. In a move that would result aid strengthening of global steel prices, Organisation for Economic Co-operation and Development (OECD) members have decided to work towards eliminating subsidies provided to the steel industry. Elimination of steel subsidies would help reduce global steel production, as unviable steel capacities thriving on subsidies would shut down, and consequently prices could improve.

    China, whose GDP is growing at 8% is likely to continue creating demand for various commodities, especially steel. The Russian economy is also on the recovery path, which would contribute in improving the current demand-supply mismatch. Added to that, there is a general feeling that 2003 is likely to be better for the US and European economies as compared to 2002.

    Indian companies are well placed to reap the benefits of the current upturn in the steel sector. It must be noted that Indian steel manufacturers are one of the lowest cost producers in the world. So any improvement in steel prices would directly add to the bottomline of these companies. On the flip side, investors should be watchful of any signs of weakness in international steel prices.

    Also, a word of caution is advised on stocks like Essar Steel and SAIL. On one-hand where Essar Steel is burdened with huge debts, it is to be remembered that SAIL is a public sector banks undertaking and has continuously posted losses for the past four years (FY99 to FY02). The significant rise seen in the stock prices of these companies is due to a very small base. While these stocks could benefit from the general improvement in the business prospects of the sector, an investment in these companies is an extremely risky proposition.



    Equitymaster requests your view! Post a comment on "Steel: Eyeing 2003". Click here!


    More Views on News

    Tata Steel: A Strong Quarter (Quarterly Results Update - Detailed)

    Aug 12, 2017

    Tata Steel reported a robust operating performance on the back of strong domestic and European operations.

    SAIL: Loss at EBITDA Level Due to Higher Raw Material Cost (Quarterly Results Update - Detailed)

    Jun 12, 2017

    The company registered a negative EBITDA of Rs 2.64 billion during the quarter. This is on the back of an increase in raw material prices.

    Tata Steel: Strong Quarterly Performance (Quarterly Results Update - Detailed)

    May 22, 2017

    Tata Steel reported a robust operating performance on the back of strong domestic and European operations.

    SAIL: Pressure Continues. Loss at Operating Levels... (Quarterly Results Update - Detailed)

    Feb 15, 2017

    SAIL has reported a 26.2% YoY increase in the topline while the bottomline reported a loss of Rs 7.94 billion.

    Tata Steel: Loss from Discontinued Business Mars Performance (Quarterly Results Update - Detailed)

    Sep 27, 2016

    Tata Steel has reported a 6.3% decline in the topline while the bottomline was in red in 1QFY17.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 21, 2017 (Close)