Rakesh Jhunjhunwala portfolio: Rakesh Jhunjhunwala’s latest stock bet plunges 26%; negative risk-return, analysts say


NEW DELHI: SAIL, the last stock pick of investor as Rakesh Jhunjhunwala, is under selling pressure. At Tuesday’s close, the script was down 26% from its 52-week high of Rs 151.10. Technical analysts said the stock was oversold and a recovery could not be ruled out.

Fundamental analysts also believe that the risk / reward ratio is turning negative for SAIL, following weak iron ore prices, which points to further difficulties to come.

Jhunjhunwala bought 1.39% of the PSU in the April-June quarter. But the stock is steadily declining after reaching its peak of Rs 151.10 on May 10. On Tuesday, the title closed at Rs 151.10. At this price, Jhunjhunwala’s stake in the steelmaker was valued at Rs 640 crore.

Aditya Agarwala, senior technical analyst at YES Securities, said the stock has fallen from a Fibonacci resistance level and is now approaching a key support level at Rs 101-103.

“Sustained trade above this support level could resume the uptrend, taking the action to the Rs 116-123 levels. Additionally, the RSI technical indicator has now reached the oversold zone, suggesting possible hedging. short over the next few sessions, ”Agarwala said.

Rohit Sigre of LKP Securities said the stock looks structurally weak as it lost key support at the Rs 110 level in the fall of Monday. Singre does not see any major support in SAIL before Rs 95. “The title could drop to Rs 95-96 before seeing a pullback. Once the title gets past the Rs 110 level, it will be in a safer area,” did he declare.

The domestic steel sector has seen large positive earnings revisions relative to the broader market since August 2020. Bloomberg Consensus FY22 earnings estimates for steel sector stocks have increased. increased 256% compared to 11.8% for Nifty since the start of the year. Among steel stocks, consensus earnings revisions were the most significant for SAIL and Tata Steel, Nomura India noted.

But the 22% drop in global iron ore prices last week does not bode well for companies, especially producers of long products like SAIL. ICICIdirect said the decline in iron ore prices is positive for non-integrated producers like JSW Steel and JSPL, but these prices bring less exciting news for producers of predominantly long products like SAIL.

Leading indicators of Chinese steel demand continued to deteriorate and weak real estate data in China as well as contagion fears related to defaults are weighing on iron ore prices.

“The latest support to steel costs is high coking coal prices and it seems to be only a matter of time, given the current pace of declining steel production in China,” before the coking coal begins to correct itself. Higher prices for coking coal are currently squeezing China. steel margins and steel price support. Global steel stocks continue to fall in expectations of lower prices, ”said ICICIdirect.

ICICIdirect, which has a “sell” rating on SAIL, said that lower iron ore prices imply lower scrap prices and lower scrap prices imply lower spongy iron prices.

“Sponge iron prices are the forerunner of long product prices in India. Recovery in demand can help product gaps; however, iron ore below $ 100 / tonne does not bode well for long commodity prices. We are seeing the biggest drop in MTM profits for SAIL and JSPL (14-17 percent), ”he said.

BOB Capital Markets said the Evergrande debt crisis in China could seriously weaken global demand for steel and induce a sharp correction in steel prices and hence margins for the Indian steel industry.

“This event could have a significant impact on nearly 60% of the demand for steel in China, which is equivalent to 30% of the global demand for steel in the year 20. The concern is visible in the sharp correction in the price of iron ore to $ 90 per tonne from a peak of $ 239 in May, ”he said and suggested“ suspending ”SAIL.

Arijit Malakar, head of research at Ashika Stock Broking, said that while the overriding concerns are not unwarranted, he expects the Chinese government to bail out Evergrande eventually.

“These fears may be short-lived. Among steel stocks, SAIL is the only one with a reasonable valuation. I would advise investors to buy if it falls. I don’t see the Evergrande crisis snowballing and change the long-term outlook for the steel industry One should not forget that governments around the world are announcing infrastructure plans, which should support steel demand in the years to come, ”said Malakar.

Narendra Solanki, head of fundamental research at Anand Rathi, said a default by China’s second-largest real estate agent may cause the Chinese real estate market to slow. He believes, however, that a rescue plan from the Chinese central authority is on the cards.

“SAIL’s valuation is reasonable compared to its peers. It reduced its balance sheet, thereby reducing its borrowing and relying more on internal provisions. It has constantly focused on improving its volume, improving its operational efficiency, which is visible by gaining Ebitda margins. With the increase in government spending on infrastructure, we expect SAIL’s performance to improve further, driven by higher fulfillment and volume growth, ”Solanki said.


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