What about the commodities space? It is deeply cyclical, especially for steel companies. Globally, steel prices are at record highs. Indian steel prices are lagging over there. , have been rallying.
We have to see if the US President Joe Biden manages to pull through the phenomenally big stimulus package of over $2 trillion. US economists have been saying that kind of number is not needed, it has to be a much smaller number. But even a much smaller figure is sufficient to boost the earnings of Tata Steel or Hindalco.
Hindalco is big in the US and makes Coke and Pepsi cans and are also big in the auto industry. Auto industry people have been sitting home for a whole year in the US. By Memorial Day at the end of May, 75% of Americans are going to be vaccinated. They would be raring to go on a holiday and they will go out and buy cars in the beginning of summer, big spending season and therefore metals will remain strong.
So whether it is the big companies like Tata Steel or a much smaller company Tata Steel Bhushan, which even if it goes from 0.4 times book to 0.6 times book, the stock will be up 50-60% from the current levels. Tata Steel in itself is not an expensive stock. The way I would look at metals in this particular round is if the volume surge is coming stronger than anticipated from durable sources.
What is your outlook on some of those PSUs in trade?
Some of the PSU metal companies like the Steel Authority of India,
are well positioned because they follow the same story line which is inexpensive stock, strong topline growth, repairing their balance sheets, valuations on their side and fairly certain demand. So, I would look at the (SAIL) and Nalco.
In case of PSU banks, I will wait simply because credit growth is still some time away. The Covid related provisioning is yet to peak because we do not know when Covid is going to peak.
Outside of that, I would stay away from companies like ONGC, HPCL because now there is talk about splitting ONGC again. I do not think there is clarity of what those splits are. Then BHEL is still in a very deep restructuring mode. So within the whole pack, I would stick with the metals where the visibility is far more transparent.
