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Stocks of major steel companies are seen extending gains next week on expectations that the 25-basis-points repo rate cut by the Reserve Bank of India today will spur investments. In the week ended Friday, stocks of steel companies rose 1-2% on hopes of steel demand picking up in the domestic market. We see an upside of about 2-3% in steel stocks in the next few sessions.
The repo rate cut is likely to encourage investment in capital intensive sectors like infrastructure, where demand for steel products is strong. There are no major earnings of steel companies next week and so there may not be much of stock-specific movement. The upside in stocks of steel companies will be broad.
Domestic steel companies are also likely to hike product prices for the month of May on expectations of a rise in demand for the alloy. This may push up stock prices of major steel companies in coming sessions. In the domestic market, steel long products find wide applications in the infrastructure sector, while flat products are used in the auto sector. Though the demand outlook is positive for steel from the infrastructure sector, muted demand for the alloy from automobile companies is expected to limit the upside in share prices of steel companies.
