Steel stocks have seen strong buying interest over the last few days with Tata Steel gaining over 12 per cent in last three days. JSW Steel gained nearly 5 per cent over the same time as compared to a 2.5 per cent gain in the Nifty.
The steel sector has underperformed for the last three years due to a sharp correction in raw material prices globally. Domestic growth concerns have also weighed on sentiments. India recorded its second straight year of sub-5 per cent growth in 2013-14.
However, the tide seems to turning in favour of steel companies now.
According to Nirmal Bang Institutional Equities, a sustained fall in raw material prices is unlikely as they have declined to a level where a large portion of Chinese supply is likely to remain unviable. This will lead to stability in international steel prices.
The brokerage says a revival in investment demand, post the decisive mandate in the general election, will lead to strong demand in domestic market and the overcapacity in domestic steel sector is likely to be absorbed by strong demand.
Nirmal Bang Institutional Equities has revised its target on Tata Steel and JSW Steel from Rs 526 and Rs 1,276 to Rs 632 and Rs 1,473, respectively.
Citi has also maintained a buy on Tata Steel with a target price of Rs 600.