Tata Steel shares give breakout, trading at six-month high; time to buy?

Shares of Tata Steel were the top gainers on Sensex and Nifty amid a correction in the broader market for the second consecutive session today. In fact, the Tata Steel stock is trading at over six-month high after rising for five consecutive sessions. The stock has risen nearly 9% during the period. Tata Steel has come out of consolidation level and given a breakout, considering the current leg of rally today, said analysts.

The rally is backed by its MD & CEO TV Narendran’s statement on December 1 that Tata Steel will continue to invest in Odisha, which has 25 per cent of India's total steel-making capacity. The Tata Group’s metal arm has already invested Rs 75,000 crore in the last five years, added Narendran. He made the remarks at the 'Make in Odisha Conclave 2022' in Bhubaneswar on December 1.

Meanwhile, the stock touched an intraday high of Rs 115 up 2.63% in the current trading session. Shares of Tata Steel were trading higher than the 5-day, 20-day, 50-day, 100-day and 200-day moving averages. The stock has gained 2.1% in a year and risen 2.7% in 2022. However, in a week, the stock has zoomed 9%.

ALSO READ:Tata Steel stock closes above Rs 100 mark for 22 straight sessions, time to buy?

Total 54.24 lakh shares of the firm changed hands amounting to a turnover of Rs 61.88 crore in the afternoon session. Market cap of the firm rose to Rs 1.40 lakh crore on BSE. The stock hit a 52-week high of Rs 138.63 on April 6, 2022 and a 52-week low of Rs 82.71 on June 23, 2022.   

The sentiment in the stock has also received a boost from the government’s move to withdraw the 15% export duty on steel products and iron ore, said analysts.

Vinit Bolinjkar, Head of Research, Ventura Securities said, "The government withdrew the 15% export duty on steel products (which was earlier imposed in May 2022) to provide relief to the domestic steel industry and boost exports. Further, the import duty concessions on anthracite/PCI coal, coking coal, coke and semi-coke and ferronickel have also been withdrawn. Removal of export duties on finished steel is expected to accelerate revenue performance while cuts on import duties on key input materials are estimated to improve profitability. Both cases are long-term positive for the domestic steel sector. "

"Though the global steel demand is subdued and the steel prices are muted, the low-cost production from India is expected to get the benefits of China plus 1 and switch in production from high-cost Europe to low-cost India. Export volumes are likely to pick up notably when global steel demand and prices recover, which will provide additional upside to the sector. Being one the largest steel producer in an already consolidated market of the Indian steel Industry, Tata Steel is likely to get the benefits in the coming years. The stock is trading at FY25 EV/EBITDA of 5.7X, which is lower than its long-term average of 6.2X," added Bolinjkar. 

ALSO READ: Export duty rollback: Can it give NMDC, Tata Steel, JSW Steel & other stocks a lift?

Osho Krishan, senior analyst - Technical & Derivative Research, Angel One said, "Tata Steel has recently started gaining traction and breached its higher band of the consolidation channel, portraying a bullish breakout. The surge has been backed by decent volumes, supporting the optimistic view in the counter. Also, the stock is heading toward the sloping trendline placed around the Rs 116-118 zone, and a decisive breach would only trigger a fresh leg of rally in the comparable period. Meanwhile, the support base has shifted to Rs 108, and immediate resistance is hovering around Rs 116-118."

Abhijeet from Tips2trade suggested buying the stock at Rs 106 level.

"A global recovery due to a slight dip in inflation has led to a relief rally in all metal stocks including Tata Steel. Currently, Tata Steel looks overbought on the daily charts and investors should book profits at current levels. Buying can be reinitiated only near Rs 106-106.35 levels for a target of Rs 121 in the coming weeks,” said Abhijeet.

Mahesh Prakot,Technical Research Analyst at Bonanza Portfolio expects the Tata Steel stock to hit Rs 162.  

"On a monthly time frame, first, the price has given a breakout of 12-year highs which placed at 90.20 and retested the level successfully, indicating a bullish strength. The price has taken support with bullish engulfing candlesticks and then settled just above the 21 Exponential Moving Averages which points out a bullish setup in the counter. The 50% Fibonacci Retracement level of the last impulsive waves and the prior all-time high level (90.20) is almost the same, suggesting immediate support for the price. The price has been trading above the Ichimoku cloud and an oscillator Stochastic RSI has also suggested a positive crossover which supports rising strength. On a weekly timeframe, the price has given a breakout of Cup & Handle Pattern with spurt volumes and the daily RSI (14) has quotes at 73 which is supportive for the long position. The trend-based Fib Extension suggested a target of  Rs 162. Based on the above technical structure, one can initiate a long position in Tata Steel at current market price of Rs 114, or a fall in the price to  Rs 110 levels can be used as buying opportunity for the upside target of  Rs 162. However, the bullish view will be negated if the price closes below the support level of Rs 98," said Prakot.

Apurva Sheth, Head of Market Perspective & Research, Samco Securities said, "Tata Steel reported a weak set of numbers in Q2 due to drop in realizations in India/Europe and higher coking coal costs, fuel and power. However, as China, biggest buyer of metals in global markets, opens its economy, prices of steel are expected to revive. Indian government has removed the export duty on steel items to nil with effect from November,19, 2022. Both of these factors have contributed Tata Steel's prices to rally in the short run and now have been priced in. However, margins will remain impacted for the European business as reported by management in its recent earnings concall. Tata Steel is currently trading at a price to book multiple of 1.3 which is just above its long term median of 1.1. We believe it is fairly priced and there is some scope for further upmove in the prices over the short to medium term." 

Ameya Ranadive, Equity Research Analyst at Choice Broking said, "In Monday's erratic trading session, shares of Tata Steel gained 3.5% to reach a high of 116.10. Since May 22, 2022, the stock was trading at its highest price. Since establishing a low of 82.70 in the middle of May, Tata Steel has been able to gain support along the upward trendline by making higher highs. On the daily charts, Tata Steel has formed a symmetrical triangle and given a break out at 109 levels. Heavy volumes helped to sustain this breakout, indicating that Tata Steel's trend will continue. Tata Steel is trading above its 20, 50, 100, and 200-day exponential moving averages, indicating that momentum is on Tata Steel's side. The strength indicator, or ADX, is at 40 and is gradually climbing. For assessing trend strength, the ADX line's direction is important. Trend strength increases and price moves in the direction of the trend when the ADX line rises. Based on the above assessment, we advise holding Tata Steel for a mid-term forecast of  Rs 127 to Rs 130."

Narendra Solanki, Head- Equity Research, Anand Rathi Shares & Stock Brokers said, "Tata Steel is among the most geographically diversified steel producers in the world and is one of the top global steel companies with an annual crude steel capacity of 34 million tonne per annum and has operations and commercial presence across the world. Post the imposition of export duty in May 2022, Indian steel exports dropped a steep 53% in H1FY23 to 5 mt as compared to 11 mt in H1FY22. Exports of iron ore and pellets in H1FY23 stood at 6.98 mt, declining sharply by 63% from 18.9 mt in H1FY22. However, with the removal of export duties, exports may pick up which in turn may support domestic pellet and steel prices. The recent announcement by management on merger of seven entities with Tata Steel merger will simplify the corporate structure, plug leakage of additional royalty payments on inter-company iron ore transfers, reduce corporate overheads, drive business growth with additional financial flexibility and bring in further operational, procurement and tax synergies. Through the commodity prices in steel market have been volatile over last quarters. The Indian market remains robust due to government spending on infrastructure and gradual revival in auto production. Management also believes that steel demand and prices will remain strong ahead which will help to reduce debt further. We remain optimistic that Tata Steel has a preferred pick in the sector with target price to Rs 146."

The firm reported a weak set of earnings for the quarter ended September 2022. Tata Steel’s September quarter consolidated profit plunged 90 per cent to Rs 1,297 crore, hit by higher expenses. The Tata group firm had reported a profit of Rs 12,547.70 crore in the same quarter last year.