Metal stocks: Why are Tata steel, JSPL and Vedanta falling?

Metal stocks in a downward trend

It has not been a good year so far metal stocks. This can be gauged from the fact that share prices of top metal companies have come under intense selling pressure. Moreover, the Nifty Metal index has plunged by a significant 21% in 2023 so far.

So, why are metal stocks falling this year? Are the issues going to persist or will they experience a turnaround? What are analysts saying about the sector? Let’s try and decode!

Metal stocks: Reasons for decline

Demand slowdown: A slowdown in demand can be attributed as the primary reason for the fall in metal stocks in 2023.

China, one of the largest consumers of steel, has been roiling from a lot of problems which have hurt the demand for metals. Slowdown in infrastructure development and fall in residential demand have been the primary contributors that have hurt the demand for metals in the second-largest economy.

Additionally, recessionary fears and high inflation in the US has been a dampener for metal demand there.

Fall in profits: Due to this slowdown in demand, metal companies posted muted results in the October-December 2022 period. Moreover, high energy costs and the ensuing rise in raw material costs have also been a contributor that has led to a fall in net profits for metal companies.

Consequently, the share prices of the metal companies have also taken a hit.

Persistent rate hikes: The metals sector is a capital intensive one. Most of the companies require heavy borrowing to ensure smooth functioning of their operations. As a result, the continuous upward trend of the interest rates has been a problem for these companies.

For example, the RBI has raised the benchmark rates by a considerable 2.5% since May 2022 and it is expected that the rate hikes are going to continue. Globally, the central banks have continued with such rate hikes which in turn has raised interest costs for these companies.

Now, let’s have a look at how some of the top metal companies in India have performed in the wake of the wider fall in the metals sector.

Top metal stocks performance

Tata Steel: With a market cap of about Rs 127,770 crores, Tata Steel is one of the biggest steel companies of India. However, the Tata Steel share price has not been immune to the wider weakness in metal stocks. Notably, the Tata Steel share price is down more than 12% in 2023.

Moreover, the company’s results for the latest quarter were disappointing too. The steel major reported a net loss of Rs 2,224 crores for the Oct-Dec 22 period, compared to a net profit of Rs 9,572 crores in the year-ago period. Meanwhile, revenues witnessed a yearly fall of 6% to Rs 57,084 crores.

Tata Steel analyst target price

JSW Steel: Commanding a market cap of roughly Rs 159,415 crores, JSW Steel is one of the top steel players in India. However, like its other metal peers, the JSW Steel share price has slipped 15% in 2023.

Additionally, the company witnessed a major yearly fall of 89% in its net profit to Rs 490 crores for the Oct-Dec 22 period. Meanwhile, revenues witnessed a yearly rise of just 2% to Rs 39,134 crores.

JSW Steel analyst target price

SAIL: The rout in metal stocks has not spared companies in the public sector too. With a market cap of about Rs 35,171 crores, SAIL is a major PSU company. Although lower than some of its peers, the SAIL share price has declined by 4.3% in 2023 so far.

Moreover, the company’s results for the latest quarter were not upbeat. Net profits witnessed a yearly downfall of 65% to Rs 542.18 crores while total income decreased by 1% from the previous year to Rs 25,140.16 crores.

SAIL analyst target price

Vedanta: Metals and mining major Vedanta, with an estimated market cap of Rs 101,832 crores, has also borne the brunt of the fall in metal stocks. Notably, the Vedanta share price is down 13.4% in 2023 so far.

Another cause for the recent decline in Vedanta share price has been its weak results for the Oct-Dec 2022 period. While net profit witnessed a yearly decline of 42% to Rs 3,092 crores, the company’s operating revenue remained almost unchanged from the previous year at Rs 33,691 crores.

Vedanta analyst target price

Hindalco: One of the leading aluminum companies of India, Hindalco commands a market cap of roughly Rs 87,000 crores. Notably, the share price rout in metal stocks has not spared the company as well. In 2023, the Hindalco share price cracked by 20.5%.

Meanwhile, Hindalco’s results for the December 22 quarter were not impressive as well. For the Oct-Dec 22 period, Hindalco reported a yearly net profit decline of 65% to Rs 1,362 crores, although revenues witnessed a 6% yearly rise to Rs 53,151 crores.

Hindalco analyst target price

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.