Breakout stock: Tata Steel techno-funda pick for double-digit gains

NEW DELHI: With the Nifty Metal index scaling new lifetime highs on China’s reopening of its economy, Tata Steel's 6% rally yesterday has taken the stock to a breakout level above the 6-month range, indicating a revival of the positive trend.

Chart readers say Tata Steel signals resumption of up move and offer fresh entry opportunity. ICICIdirect has a target price of Rs 127, an upside potential of 10% on the stock.

"Tata Steel’s share price has formed a strong base around Rs 100 over the past few months factoring in a host of negatives," the brokerage said, adding that the share price is seen resolving out of six months base formation, which resembles a cup and handle bullish formation.


ICICIdirect expects the share price to head towards Rs 127, which is an 80% retracement of the April–June 2022 decline (Rs 138-83) over the next few months while strong support is placed at Rs 98.

Among oscillators, the weekly RSI has generated a bullish crossover recently, thus validating the positive bias.

At a fundamental level, China reopening its economy bodes well for the steel sector as it would aid a pick-up in economic activity, thereby aiding a revival of demand.

"Improvement of Chinese economic growth, in general, augurs well for global steel demand. Over the last month, Chinese steel prices witnessed an uptick of 10% to $600/tonne.
An uptick in global steel prices augurs well for Tata Steel," it said.

Global brokerage Jefferies has also upgraded Tata Steel to buy with a target of Rs 150.

"We find Tata Steel attractive on valuations with the stock trading at its long-term average PB and EV/IC multiples of 1.0x despite higher ROE (10-13% in FY24-25E vs 8% LT average), the rising share of higher-margin India business in volumes and continued deleveraging," Jefferies analyst Nitij Mangal said.

Among all the metal stocks under its coverage, the brokerage finds Tata Steel most attractive on valuations. “Tata Steel is trading at its long-term average PB and EV/IC multiples of 1.0x despite higher ROE (10-13% in FY24-25E vs 8% LT average), the rising share of higher-margin India-business in volumes and continued deleveraging,” Jefferies said.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)