Prices of commodities have surged significantly since last year. Metal prices are up 40-50% and the agri-index is 30% above January 2020 levels, according to domestic brokerage firm JM Financial. “Supply constraints coupled with an earlier-than-anticipated demand revival in the second half of 2020, along with the global fiscal and monetary boost has driven recent commodity price increases,” they said in a recent report. Although the pickup in prices might result in a spike in inflation which could further impact consumption, there are also certain opportunities for investors. Analysts at JM Financial believe some metal stocks along with oil & gas sectors plays could be the beneficiaries of the upcycle.
Domestic HRC price continues to rise and is up nearly Rs 4.8per ton from March 2021 end to Rs 60,000 currently driven by healthy demand from end-user industries and a strong rally in international steel prices, the report said. Demand for steel has been strong from China while it tries to battle pollution by capping domestic production. “We expect steel prices to hold firm in near term as long steel demand enters construction led seasonally strong period while high automotive demand holds,” JM Financial added.
In India, crude steel capacity addition of only 24 million tons over FY22-25E is expected by JM Financial. Among stocks, the report said that Tata Steel, Jindal Steel and Power, and JSW Steel remain their top picks. Tata Steel currently trades at Rs 929 per share and the target price for the same is at Rs 1,160 apiece. Jindal Steel and Power trades at Rs 443 per share, the report has pegged a target price of Rs 500 on the scrip. JSW Steel was quoting Rs 639 apiece on Friday, while the target price for the same is Rs 700 per share.
Oil & Gas
Crude oil prices have also surged back from near-zero levels to now trade in the range of $60-70 per barrel. With normalcy looking closer than before across the world, apart from some pockets, prices continue to inch up. “ONGC and Oil India are the key beneficiaries of higher crude price; preferably ONGC given its higher leverage to crude price (partly due to its overseas oil portfolio),” the report said. JM Financial said that the two stocks could also benefit from the potential deregulation of/hike in domestic gas price.
ONGC was trading at Rs 102.8 per share on Friday. JM Financial has a target price of Rs 130 on the stock. Meanwhile, Oil India has a target of Rs 145 per share, up from its current market price of Rs 116 apiece.
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