The Hindu Business Line : Steel stocks fall on talk of export tax

Mumbai, March 24 While the markets seemed to be taking a breather on Monday after the high volatility of the last week, steel stocks took a beating on news of a possible tax levy on steel exports by the Government.

BSE-Metal was down by 5.27 per cent on Monday, while the BSE Sensex ended the day with a gain of 1.96 per cent.

Steel stocks fell on apprehension of an export tax levy by the Government, said analysts.

“This is a sector which is to an extent responsible for higher inflation and so the Government might take some control measures as a disincentive for the soaring prices of steel,” said Mr Ajay Parmar, Head-Research, Institutional Equity, Emkay Shares.

The inflation rate, based on the Wholesale Price Index, surged to an 11-month high of 5.92 per cent for the week ended March 8, from 5.11 per cent a week ago.

The inflation rate is now way above the RBI’s target of around 5 per cent for the current financial year that ends on March 31, 2008.

In addition to the export levy on steel, there is a proposal for a regulator for the steel sector, said analysts.

If price regulation comes in, then the steel industry’s growth might be affected, they said.

“Iron ore players are globally increasing prices so the Indian steel players have also raised prices in the past couple of months,” said Mr Parmar.

Cost Pressure

“There is cost pressure because globally the input prices are also rising and this is putting pressure on Indian steel companies prices and also affecting their margins,” said the head of research at a broking firm.

“Steel companies such as JSW might get impacted if the export levy happens,” said an analyst with a brokerage.

JSW fell 11.98 per cent to Rs 788.25; Bhushan Steel fell 5.86 per cent to Rs 720.75; SAIL was down 6.22 per cent to Rs 186.55; Tata Steel was down by 7.04 per cent to Rs 592.45.

There has been a change in the market perception for metal stocks which otherwise enjoy good valuations, said Mr Ashish Poddar, metal analyst, Almondz Global Securities Ltd.

“There had been a lot of FII and mutual funds, which had large exposures to metal stocks, and they have been selling for the past few days,” he said.

Foreign institutional investors held 20.55 per cent equity stake in Tata Steel as on 31 December 2007; for JSW Steel the figure is 29.03 per cent.

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