The Nifty Metal index fell by about 2 percent on Wednesday after Credit Suisse downgraded its rating on the metals pack from overweight to underweight, CNBC-TV18 reported quoting the global investment bank Strategy note.
Credit Suisse reversed its positions made in December 2020, and booked profits in the metal pack as Price-to-book (P/B) value relative to the market is near a 10-year high. It further added that the value can even go higher and remain elevated, but the rise is not structural, cautions the note.
The global investment bank is of the view that the current surge in apparent demand is due to an extreme inventory cycle and not a structural increase.
Reacting to the news, stocks like NMDC, Tata Steel, JSW Steel, SAIL, and JSPL fell 2-4 percent each.
Credit Suisse removed Tata Steel from its 30-stock portfolio and added Hindalco.
The investment bank highlighted that CY21 price performance has been extreme, driven by the surge in iron ore prices. The stock has rallied around 300 percent in the last one year, and over 60 percent so far in the year 2021.
“Slower steel capacity increases due to ESG regulations are not sufficient to justify holding on, particularly given the Tata Steel profit surge is iron-ore driven and should correct,” it said.
“Further, with the aluminum-to-steel price ratio near a two-decade low, an inversion is likely - we remove Tata Steel from our 30-stock portfolio and add Hindalco,” it said.
The investment bank has downgraded Tata Steel to Neutral with a target of Rs 1,250. JSPL has also been downgraded to Neutral (from Outperform) with revised target price of Rs 450, reported CNBC-TV18.
Meanwhile, Credit Suisse downgraded JSW Steel to Underperform (from Neutral) with a target of Rs 550. Of all four steel names, JSW is trading at most expensive valuation (2.8x P/B) and its capex intensity would remain high in the near term, it said.
They maintained a Neutral rating on SAIL with a target of Rs 140