Whalesbook
Indian Steel Sector Shines Amidst Global Gloom
India's steel industry is charting a distinct growth path, standing out against a backdrop of global oversupply and subdued demand. Resilient domestic consumption, coupled with strategic capacity expansions and government policy interventions, positions the sector for robust volume growth. Projections indicate an 8-10% compound annual growth rate for volumes between FY25 and FY28, making India the fastest-expanding major steel market worldwide.
Global Headwinds and India's Resilience
While markets elsewhere grapple with China's slowing economy and its impact on global prices, India's crude steel output surged 10% year-on-year in the first 11 months of 2025. This contrasts sharply with a global contraction in output. Despite previous pressure on profitability due to subdued prices, recent policy measures, including safeguard duties, and stabilizing input costs are expected to foster a gradual earnings recovery from FY27.
Domestic Demand as the Primary Driver
Infrastructure development, real estate, and investments in the energy transition are fueling domestic steel consumption, which is anticipated to grow at a steady 7% CAGR through FY28. Indian steel producers have significantly ramped up capacity, nearing 200 million tonnes per annum (mtpa) by FY25, supported by strong balance sheets. However, near-term volatility from China's substantial steel exports remains a challenge for global prices.
Strategic Policy Support and Pricing Visibility
Protective measures, such as definitive safeguard duties on flat steel imports for three years, have successfully reduced import pressures and enhanced pricing predictability. This policy shift signals a move toward a more stable domestic pricing environment, with domestic hot-rolled coil (HRC) prices expected to trend higher supported by stable demand and controlled imports. Benign input costs should further bolster profit margins.
Motilal Oswal's Top Picks
Motilal Oswal Financial Services has recommended JSW Steel and Tata Steel, setting price targets of ₹1,360 and ₹220, respectively.
JSW Steel is poised for medium-term margin recovery, supported by supportive policies and stabilizing global prices, despite near-term pressures from imports. The company's aggressive capacity expansion plan aims to reach 41.9 mtpa by FY27, with long-term potential to 50 mtpa. Strategic investments in raw material security and logistics, alongside a focus on value-added steel, strengthen its competitive position.
Tata Steel is entering a strong phase, benefiting from robust domestic demand and policy support. Improvements in its European operations, with losses narrowing, are a key catalyst, with breakeven targeted by Q4FY26. Decarbonisation efforts and a shift towards electric arc furnaces are structurally lowering costs and environmental impact.
Both companies are well-positioned for sustained earnings recovery, underpinned by domestic expansion, disciplined capital expenditure, and improving operational efficiencies.