There was no way to stop Tata Steel’s dream run. If there is a war, inflation, or uncertainty, the party might not go well even in 2022.
The head of Tata Sons bought 200,000 shares of Tata Steel worth INR5.79 crore in March 2020, when the world didn’t know what the market would do.There were about 290 shares of Tata Steel in the market. It costs INR1,265 as of the close of the market.
The CEO world of Jamie Dimon and N Chandrasekaran may be based on pop culture.
Many people thought Tata Steel was a good company, not just Chandrasekaran, and he had a lot of faith in one of the group’s leading businesses.
In December 2019, 85 mutual fund schemes owned 14.12% of Tata Steel’s total shares. This number has dropped to 10.37 per cent for 73 systems at the end of December in 2021.
A mutual fund called SBI Mutual Fund saw its share of the stock rise from 1.38 to 2.29 per cent in the same time. SBI also has the largest Nifty ETF, which makes up many of its holdings.
They bought the stock because it was worth it.
When you think about it, the NYSE Steel index was at 520.97 on March 23, 2020, and Tata Steel was at INR271.15. Tata Steel has gone up 351% since then, even though there have been many ups and downs. Most active funds have made a good profit on the stock, but not all are the same way about the stock’s prospects. The store has done well, and it’s now at INR1,265.25. But what will happen now that there is a war, uncertainty, and concerns about inflation?
Moving in the right direction is an intelligent thing to
When steel prices started to rise again after the first wave, Tata Steel paid off a lot of debt and cut its debt-to-equity ratio from 1.52 to 1.39. This was because there was less demand and less supply from China.
By August 2021, the stock had risen five times since the March 2020 crash, and it went up almost twice during that time.
No one has expected this year. If 2020 was a surprise, no one could have foreseen what would happen. In this case, commodity prices were not expected to go up, and the war was new and different from anything else. There is a general belief that when Russia is hit with sanctions, it will be suitable for countries like India like China. Russia makes about 4% of all steel in the world today. In 2021, the government sold 15.9 million metric tonnes (MT) of semi-finished steel and 16.8 million MT of finished steel to the rest of the world.
In terms of where it sells, it has a lot of business in Turkey, Taiwan, and Kazakhstan. So far, Russia hasn’t sold many things to China, but that could change. After the sanctions, Russia could make money in this market, which could be good. Do the sanctions against Russia help Indian steel companies or Tata Steel?
Then, I’ll follow the tracks.
In the last ten days, Tata Steel has gained. Tata Steel’s stock kept going up in the first three days of the war, with a 6% rise on the first two days and a 5% gain on the third day. It took a while for the stock market to move.
It was March 15, and the March futures were in the red, and this meant that there had been a short build-up in them. Open interest rose by 1.82 per cent, but the stock’s futures price fell by 6 per cent. This is how it worked out: The bullish feelings came to an abrupt halt right away.
Because of the war between Russia and Ukraine, commodity prices may go down when the war is over. So, we have to be careful, says Sonam Srivastava, the founder and CEO of Wright Research and a fund manager for the Smallcase fund.
As soon as that, there’s a giant inflation bomb.
Inflation in the United States is at a four-decade high of 7.9%. Before the pandemic, the Fed had said that it planned to raise interest rates in 2020. But job losses and a slowdown in the economy during the time kept it from doing so. Because of high inflation, the Fed again said in January 2022 that it would raise rates again.
Fed finally raised the rates.
As long as the Fed has raised interest rates, commodity prices have gone down. The stock price of Tata Steel usually goes up or down with the cost of metals around the world. There is a flip side to this.
There’ll be a close eye on the price of Tata Steel now that the Fed has decided to raise interest rates, so It’s also being talked about that there will be a supercycle in commodities that will help steelmakers.
When the growth of China isn’t at its best, some people say that metal prices should not be seen as the start of a supercycle. Supply constraints will help to push up prices.
The war between Russia and Ukraine will put a significant strain on supplies. It is in this area that Indian businesses could make money.
Talking about the basics
According to data from mutual funds, fund managers are wary of steel stocks. Tata Steel has good fundamentals, but data shows that fund managers are wary of steel stocks.
India has 142MT of total steel-making capacity now, and Tata Steel has a share of 20MT. At an estimated cost of INR1 lakh crore, the company plans to double its capacity to 40MT by 2030, and it wants to do so by then.
Tata Steel has had a rough time on the stock market. Usually, this stock copies the prices of all of the world’s metals, but today it is writing its own storey.
Because of its European subsidiary, Tata Steel Europe, which had a revenue share of about 28% in Q3 FY22.
Then, think about this. Nifty VIX was at 31 points on February 24, 2022. That’s when Russia started to attack Ukraine. People have mostly kept the number below 20 points. During the war, the number mainly stayed between 25 and 30 points. Tata Steel rose the most in the first two weeks of the war, rising 20% in the Nifty 50 constituents pack.
In Europe, steel demand rises because of a lack of supplies from Russia and Ukraine, and Tata Steel is taking advantage of the rise in steel prices. As a group, Russia and Ukraine sell about 13% of the world’s steel, which is a lot, and Russia sold about 30% of its steel to Europe in CY20.
With the ongoing conflict between Russia and Ukraine, we think prices will rise in the international market because 45MT of steel trade will be temporarily halted. This will lead to a rise in prices in Europe. Tata Steel Europe’s Ebitda will be a lot more than we thought it was going to be because we believe Tata Steel will make a lot of money in the first half of the year. A Motilal Oswal report says to keep “Neutral” with a target price of INR1,497 based on a 5x FY23 EV/EBITDA of INR1,497.
Can Tata Steel’s stock keep going up? Because steel prices in Europe are so high, the store is in a good place. It has also done well in times of market volatility.
The three things are:
Many things could affect Tata Steel’s stock performance, like how much inflation in the US and iron ore and coking coal prices go up. Since two weeks ago, iron ore and coal prices have also gone up.
“The price of coking coal would hurt domestic steelmakers’ margins more than the iron ore price because India is a lot of its iron ore.” Priyesh Ruparelia, vice-president and co-group head of Icra, says that even though Ebitda per tonne is going down, it will still be healthy.
During the first 15 days of the war, the Russian Rouble went down by 64%, which is a lot. Some businesses have left the country, and others have stopped working for a short time. The EU had prevented some of the top Russian financial institutions from using SWIFT, which is a quick, easy, and safe way to send and receive money transfer instructions. It connects about 11,000 banks in more than 200 countries. All of this affects trade, and it all comes together.
MSCI, FTSE Russell, and S&P Dow Jones have also taken Russian stocks from their benchmark indices. Russia has also shut down its stock markets for a short time because of a drop in the MOEX value. Before: This was not the case when it took over Crimea in 2014.
A lot of fighting broke out between Russia and eastern Ukraine after they agreed to merge, and they didn’t come right away, like this year. After it hit a low in January 2015, it was worth about 90% less than in January 2014. Another reason its currency lost value was because oil prices were low, which was its primary source of income.
However, Tata Steel didn’t do so well back then, and it went down 2% in the same time as the rouble. This is because China was in charge of meeting the needs of people back then. Today, China wants to cut down on its carbon footprint, cutting back on the amount of steel made.
So, even though Tata Steel’s overall situation is good, it may not be suitable for the stock market right away. Its Return on Capital Employed (RoCE) went from 5.8% to 11% last year. Tata Steel’s price-to-book value is 1.65x.
The bottom line is:
If the global economy picks up and the US doesn’t mess with an already volatile global economy, steel prices will increase. But in the short term, if the conflict between Russia and Ukraine gets worse, we might even see a shortage on the market’s supply side.
Coking coal and natural gas are used to make steel in both countries at war. So, inflation is the main thing people are worried about right now.
If there aren’t enough coking coal in India, it will have to get it from other countries. Steel prices may rise, but so will the costs of making it.
It all comes down to China’s need for things. During the global financial crisis, the country’s need for steel had grown. No, because China isn’t entirely out of the Covid-19 situation, this will not happen.
This is a tricky question to answer right now.
Meanwhile, Kotak Institutional Equities has lowered its target price for Tata Steel, and that’s not good news for the company.
The report says to buy JSP, NMDC, and Tata on dips, but not JSTL and SAIL.
edited and proofread by nikita sharma