Tata Steel share price has been experiencing volatility in 2022. The share price was falling at the beginning of the year.
However, the scenario changed in March 2022 when Tata Steel shares turned around and rose.
But this did not last long. Shares of the steel major again started falling in May.
Yesterday, shares of Tata Steel slumped over 12% and hit a 52-week low of Rs 1,003.
Today too, the stock is down marginally and trading near its 52-week low.
But what caused the sharp fall yesterday? What suddenly changed that pushed down Tata Steel shares?
Read on to find out...
Changes in the steel sector
Over the weekend, on 21 May 2022, Finance Minister Nirmala Sitharaman introduced changes in the customs duties on steel.
The ministry notified export duty on as many as 11 iron and steel intermediaries and lowered import duties on 3 raw materials.
According to the notification, the export duty was increased on one item while ten fresh items are being brought into the tax net.
These changes are brought to ensure the local availability of steel in India.
Thus the domestic prices of steel will fall because exports are discouraged. This will leave an impact on share prices of the steel sector.
Tax rate and share price is inversely proportionate to each other. Hence, when a tax on any commodity is increased, the share price of the producing company is bound to fall.
This happened with the share price of Tata Steel. Owing to the rise in duty announced on Saturday, the share price saw a rapid fall on Monday.
Shares of Tata Steel opened at Rs 1,095.1 yesterday, which is 6% lower compared to its previous closing price.
Within a couple of minutes of market opening, shares of the company extended its losses. It ended over 12% lower yesterday.
A huge impact of export duty rise is seen on Tata Steels because 15-20% of Tata Steel's sales comes from export of steel.
How did other metal stocks perform?
A minor pebble is enough to send a weak cart tumbling down. The cart of metal stocks was already weak.
Note that metal stocks have been under a lot of pressure lately. The metal sector was already facing issues like the economic slowdown of China, change in the demand-supply of steel, etc.
To know more, check out our editorial on why metal stocks are falling.
Meanwhile, chartist Brijesh Bhatia today shared his view on metal stocks and whether the rally in metal stocks is over.
You can read it here: Metals Stocks Start on a Rusty Note. Is the Rally Over?
The cart was already moving with difficulty. But the pebble of export duty sent the steel sector tumbling down.
What the future of Tata Steel looks like…
Despite the adverse situation in the steel sector, the financial statements of Tata Steel paint a bright picture.
In financial year 2021-2022, Tata Steel's sales have increased around 54% compared to the previous year.
For the full financial year 2021-22, Tata Steel reported good earnings. Its net profit rose to Rs 41,750 crore. This is a more than five-fold jump from previous year's net profit of Rs 8,190 crore.
Tata Steel became the Tata group company's most profitable company, surpassing Tata Consultancy Services (TCS) after several years, aided by rising steel prices due to the commodity supercycle.
Thus, Tata Steel's share price may be falling due to market circumstances, but its financials are very sound. This indicates a positive sign for long-term investors.
However, investors have to be very careful. The markets are constantly changing. These changes have a big impact.
Investors must keep themselves updated with all the changes.
To know more about Tata Steel, check out Tata Steel's financial factsheet and its latest quarterly results.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)