Metals in a sweet spot, says ICICI Securities; picks Tata Steel, Hindalco Industries as its top bet for bumper returns

As the prices of commodities see an upward trend, metals seem to be in a sweet spot. Domestic brokerage firm ICICI Securities is bullish on metals and maintains a 'Buy' stance on most of the metal stocks, including Tata Steel and Hindalco.

It sees an upside of up to 35 per cent across the sector. 

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While the double impact of cost curve increases and export restrictions out of Russia is being felt in aluminium, zinc and steel, the brokerage expects supply side imbalances to continue in various other commodities with strong undercurrents of inflation.

ICICI Securities is bullish on the steel companies in India and is of the opinion that there will be value creation from hereon if Indian steel players can consolidate and increase volumes (absolute) irrespective of the volatility. 

Tata Steel, JSW Steel and Jindal Steel are the best bet for this brokerage. 

Out of the three stocks, Tata Steel is expected to give highest returns, this brokerage says. It sets a target price of Rs 1700 per share, upside of 34 per cent.

It will be followed by Jindal Steel and JSW Steel. 

In the initial inflationary phase, Tata Steel and JSPL may outperform JSW Steel. 

JSW Stell will catch up as the inflation recedes to make the performance almost similar as the cycle ends, ICICI Securities said in its report. 

The report suggested Hindalco to be the best bet in the metal category as the impact and the duration of the shock may create some more cost curve bump, the report said. Aluminium prices will correct now under the scenarios of softening power prices and softening demand on account of higher aluminium prices. 

Hindalco can hold off aspirations of smelter capex, inorganic acquisitions and keep increasing downstream capacities India and abroad. It sees an upside of up to 20 per cent in the stock, with a target price of Rs 700 per share.