Up To 36% Dividend Yield: Tata's Top Steel To Vedanta Stock, Metals Fly High; Top Picks To Buy

Global brokerage JPMorgan has made strategic revisions to India's metal stock target prices, foreseeing a lucrative era for low-cost steel producers. As the sector anticipates a peak in the fiscal year 2026, JPMorgan leans towards steelmakers, with JSW Steel emerging as their top pick. However, NMDC finds itself at the bottom of the brokerage's preferences.

JSW Steel

JPMorgan has upgraded JSW Steel, positioning it as the top pick in its portfolio. Shifting from a neutral stance to overweight, the brokerage has revised the target price significantly, raising it from Rs 730 per share to Rs 980 per share. The move underscores confidence in JSW Steel's potential to outperform and capitalize on the expanding cyclic peak expected in FY26.

Coal India

Contrastingly, the state-run mining giant, Coal India, experienced a downgrade from overweight to neutral. Despite the shift in stance, the brokerage increased the target on the stock by a notable Rs 190 per share, reaching Rs 480 per share. This move indicates a more cautious outlook on Coal India's performance, aligning with the broader sector trends.

SAIL

Steel Authority of India Limited (SAIL) faced a nuanced adjustment, with the brokerage downgrading the stock from overweight to neutral. The target price, however, saw a modest increase of Rs 5 per share, settling at Rs 120 per share from the earlier Rs 115 per share.

NMDC

National Mineral Development Corporation (NMDC) experienced a double downgrade, transitioning from overweight to underweight. Despite the downgrade, there seems to be a silver lining as JPMorgan raised the target to Rs 195 per share from Rs 156 per share. The rationale behind the downgrade points to the brokerage's anticipation of a decline in international iron ore prices in FY25/26.

Tata Steel

JPMorgan has maintained an overweight call on Tata Steel, showcasing consistent confidence in the Tata Group steelmaker. The target price received a boost, moving from Rs 150 per share to Rs 170 per share.

Hindalco

Aditya Birla Group's Hindalco Industries has found favour with JPMorgan, maintaining an overweight rating. The target price witnessed a substantial increase, rising to Rs 600 per share from Rs 490 per share. The brokerage emphasizes the potential for improved margins and views the Bay Minette expansion as a multi-decadal opportunity.

Vedanta

JPMorgan has retained a neutral rating on Vedanta, the diversified metals company. The target price remains at Rs 280 per share, signalling a cautious stance on the company's performance.

Vedanta, led by Anil Agarwal, continues to be a dividend powerhouse. Having paid the first interim dividend of up to 1850%, amounting to Rs 18.50 per share for FY24, Vedanta remains the top-paying large-cap dividend stock in 2023. Despite a significant correction of 24.30% in 2023, Vedanta's dividend yield stands impressively at 36%. The company spans operations across various countries, encompassing oil and gas, zinc, lead, silver, copper, iron ore, steel, nickel, aluminium, power, and more.

Hindustan Zinc, another dividend giant, recently declared a board meeting to discuss the second interim dividend for FY24. In FY23, the company distributed a 3775% dividend, amounting to Rs 75.5 per share. Presently, the stock boasts a dividend yield of 25.15%. Despite a 7.5% drop in the current year, Hindustan Zinc remains a dominant player in the Zinc-Lead and Silver business, governing around 75% of the growing Zinc market in India.

Coal India, the largest government-backed coal producer globally, turned ex-dividend for an interim dividend of Rs 15.25 per share for FY24. With a dividend yield of 7%, the stock has surged over 54% YTD. The company, under the Ministry of Coal, is not only a major player in the coal sector but also one of the largest employers in India with nearly 2,72,000 employees.

On March 5, foreign brokerage firm CLSA expressed caution regarding the Indian steel sector. Citing higher valuations and a shift in profit pool dynamics towards miners, CLSA downgraded Tata Steel to 'Sell' from 'Outperform,' reducing the target price to Rs 135 per share from Rs 145 per share. JSW Steel also faced a downgrade to 'Sell' from 'Underperform,' with the target price lowered to Rs 730 per share from Rs 810. However, CLSA maintained an 'Underperform' rating on Jindal Steel & Power (JSPL) but raised its target price to Rs 840 per share.

CLSA's cautious stance revolves around three key points. Firstly, it anticipates a shift in profit towards miners as steel capacity increases, with domestic steel prices unlikely to trade above import parity. Secondly, valuations for steel stocks have risen in the past eighteen months, reaching 1 standard deviation above their median. Lastly, consensus estimates are not factoring in spread compression, leading to concerns about the sector's overall performance.

As the sector grapples with supply outpacing demand growth and an increased reliance on exports, the cautious outlook is grounded in the belief that domestic steel prices may not maintain their current levels. CLSA underscores the historical pattern of positive returns during trough spreads but notes a deviation from this trend due to elevated valuations in the last 18 months.

The metals and mining sector in India is navigating through a complex web of factors, including global market dynamics, dividend payouts, and cautious assessments by renowned brokerages. Investors are advised to tread carefully, considering the nuanced perspectives presented by JPMorgan and CLSA, while also keeping a close eye on the dividend kings Vedanta, Hindustan Zinc, and Coal India.

Following the brokerage upgrade, Nifty Metal was seen trading with gains of nearly 2% as of 2:30 pm with Tata Steel contributing the most and trading at a 52-week high followed by JSW Steel. The index has reaped returns of nearly 50% in the last one year.