Whalesbook
Nomura's Bullish Outlook for Indian Steel
Nomura's positive view on India's steel sector is driven by strong domestic demand and favorable pricing. The brokerage notes expanding margins, with average HRC spot margins in April 2026 at INR 38,380 per tonne, well above the two-year average. This domestic strength helps cushion against global uncertainties, including China's trade policies and Europe's Carbon Border Adjustment Mechanism (CBAM). However, escalating geopolitical conflicts and their impact on energy supply chains and input costs present significant risks to current earnings projections.
Strong Domestic Demand Drives Growth
India's steel sector is thriving, fueled by domestic consumption that grew 7-8% in FY2026 to 164 million tonnes. This growth is supported by substantial government infrastructure spending and steady activity in construction, railways, and manufacturing. Crude steel output rose over 10.7% year-on-year to approximately 168.4 million tonnes in the same fiscal year. Nomura believes Tata Steel, JSW Steel, Jindal Steel & Power, and Lloyds Metals & Energy are well-placed to benefit due to their scale, operational flexibility, and cost structures. These companies are also continuing to expand capacity, signaling confidence in future demand.
Global Trade Challenges and Valuations
While domestic demand is the main engine, global trends offer mixed signals. Chinese steel prices have edged up, and European prices remain firm due to CBAM. However, increasing global protectionism and evolving EU safeguard measures from July 2026, along with the expanded CBAM, could limit export opportunities. Current valuations for the recommended stocks vary. As of April 2026, JSW Steel trades at a P/E ratio of around 35.74-50.74, Jindal Steel & Power at 32.5-61.18, and Lloyds Metals & Energy at 27.01-33.88. These figures show some stocks, particularly Jindal Steel & Power, are valued at a premium compared to peers like SAIL (which reported losses) and APL Apollo Tubes (P/E 47.1-64.9).
Geopolitical Risks Threaten Input Costs
Despite Nomura's optimism, significant challenges threaten the Indian steel sector's stability. Escalating geopolitical conflicts, especially in the Middle East, have disrupted energy markets, increasing the risk of supply shortages for key industrial fuels like LPG and LNG. India's reliance on imports via critical routes such as the Strait of Hormuz exposes it to substantial supply risks, which could drive up input costs and disrupt operations, contradicting the assumption of stable costs. The crisis in early 2026 highlighted this vulnerability, leading to price hikes and supply rationing. Although companies like Jindal Steel are exploring alternatives, such as syngas, to mitigate these risks, the broader sector remains exposed. Furthermore, global trade tensions and rising tariffs, including the EU's CBAM, could restrict export growth and create price pressures. Valuations for some recommended stocks, like Jindal Steel & Power (P/E over 60) and JSW Steel (P/E around 39.22, above its 10-year median), appear high given these growing external risks.
Future Outlook: Balancing Growth and Global Uncertainty
The Indian steel industry is expected to continue its growth, supported by ongoing infrastructure development and domestic demand. Capacity expansion plans are on track, targeting 300 million tonnes by 2030. However, the sector's ability to maintain current margin levels and handle price volatility will depend on managing input cost fluctuations from geopolitical instability, securing energy supplies, and adapting to a more protectionist global trade environment. The industry's resilience will be tested as it balances strong domestic demand with these complex external factors.