Sept numbers could show the way ahead

When it comes to the steel sector, investors need to steel themselves further against possible erosion of value, which would compound the problems that the sector faces. Many global issues affecting the metals segment continue unabated and the factors that seem to be pulling down the local steel industry display little sign of weakening. The result is evident: revival of expectations is hopelessly pared, at least by influential quarters.

The green shoots being witnessed in select metals in recent times are not quite evident in steel, as their latest statistics would reveal. The depressed numbers, it is clear, are not likely to revise immediately.

The immediate issue: a higher earnings visibly is the missing link and it would remain so in the near future. The September quarter would be indicative in many ways and steel companies’ financial numbers, including the all important Ebidta, would be tracked keenly.

What investors want: a few critical developments in the steel domain would lead to a surge in demand, it is felt, following an escalation in infrastructure growth, prompted by reform policies of the government. Matching this should be strengthening of core production activities, leading ultimately to a firming up of the price line.

Naturally, a shakedown in the sector’s debt profile would prime the industry to a great extent. At the moment, indebtedness is rampant among steel firms. Positive signals, I feel, would rub off on investors, countless numbers of whom have historically placed their bets on steel stocks. Yet as things stand, acchhe din for them is still far away, a particularly painful scenario for those who have seen peaks and the subsequent meltdown.

In short, steel stocks would see better times if the sector shapes up in terms of higher demand, policy sops, escalated realisations and consolidation of debt. As older investors would no doubt recall, a lot of trading action happened around stocks like SAIL and Essar. The enthusiasm for such scrips is a thing of the past – a scenario that is likely to retain status quo in the days ahead. That steel would not regain its primacy in the capital market in a hurry is evident from lack of any remarkable investment activity in terms of value buying. Steel stocks are not close to the top in the market-cap tables too. Institutional interest in steel scrips has ebbed. Retail investors may look for opportunities in steel only when a turnaround becomes a more palpable reality. True, steel too will reverse the trend – it happens every time, across the cycles. But buying now and waiting patiently, seemingly for a nearly endless period, is tough for ordinary investors. They are simply not steely enough.

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