MOFSL recommends these two steel stocks to buy amid strong domestic demand

India's steel sector is set to outperform globally, driven by strong domestic demand, safeguard duties and capacity expansion. Motilal Oswal picks JSW Steel, Tata Steel

India's steel sector: Structural tailwinds offset global headwinds

 

Indias' steel industry is emerging as a clear outlier in a globally subdued environment, supported by resilient domestic demand, capacity expansion, and policy-led pricing support. While global steel markets continue to grapple with oversupply and weak consumption, India is positioned to deliver a robust 8–10 per cent volume CAGR over FY25–28E, making it the fastest-growing major steel market globally.

 

Global steel demand remains under pressure, led by China's structural slowdown. China's consumption share has declined sharply over recent years, while its export surge has depressed global prices. In contrast, India continues to post strong production and consumption growth, with crude steel output rising 10 per cent Y-o-Y in 11MCY25, even as global output contracted. Subdued steel prices since FY23 have weighed on profitability, but recent policy interventions; most notably safeguard duties along with stabilising global prices and benign raw material costs, are setting the stage for a gradual earnings recovery from FY27 onward.

 

 

Domestic demand remains the primary growth engine, supported by infrastructure spending, real estate, transport, and energy transition-related investments. Finished steel consumption has historically grown faster than GDP, reflecting strong structural demand, and is expected to sustain a ~7 per cent CAGR over FY25-28E. On the supply side, Indian producers have added significant capacity, with crude steel capacity nearing 200mtpa in FY25, backed by healthy balance sheets and sustained deleveraging. However, global uncertainty persists. China's aggressive exports is accounting for roughly a quarter of global steel exports which have capped global prices. While rising protectionism and anticipated production cuts are expected to curb exports over the medium term, near-term volatility in global prices remains a key challenge.

 

A notable structural shift is the divergence between India and the rest of the world. While global peers face stagnation, India is consolidating its position as a demand-led growth market. Protectionist measures, including definitive safeguard duties on flat steel imports for three years, have reduced import pressure and improved pricing visibility. This policy support marks a critical shift toward a more stable domestic pricing environment.

 

With safeguard duties in place, domestic steel prices have room to normalise further, supported by a favourable gap versus landed import prices. Over the medium term, domestic HRC prices are expected to trend higher, aided by stable demand and controlled imports, while benign input costs should support spread expansion. Combined with ongoing capacity additions and improved balance sheets, these factors underpin a multi-year recovery in profitability and reinforce the sector's structural growth narrative.

 

Motilal Oswal stock recommendations: Top steel stocks to buy, Jan 20: 

 

JSW Steel | Share price target: ₹1,360

 

JSW Steel share price's near-term performance reflects pressure from subdued steel realisations amid higher imports, which weighed on margins in FY25. However, a supportive macro backdrop marked by safeguard duties, stabilising global prices, and benign input costs is expected to aid margin recovery over the medium term. JSW Steel's Ebitda declined in FY25 due to weaker net sales realisations, though softer raw material costs provided partial relief. Growth visibility remains strong, underpinned by an aggressive capacity expansion plan that will lift domestic crude steel capacity to 41.9mtpa by FY27, with further upside to 50mtpa over the longer term. 

 

Investments in iron ore and coking coal security, logistics infrastructure, and renewable energy are strengthening cost leadership. Premiumisation remains a key lever, with value-added steel accounting for a majority of sales, supported by downstream expansions and new automotive and specialty steel projects. A strategic joint venture at the BPSL unit is a material positive, enabling significant debt reduction while supporting future capacity growth. Together, these initiatives position JSW Steel well for a cyclical upturn and sustained earnings recovery over FY26–28.

 

Tata Steel | Share price target: ₹220

 

Tata Steel is entering a stronger phase, supported by robust domestic steel demand, policy-led price support, and improving performance in its European operations. In India, recent safeguard duties and lower imports have aided a recovery in steel prices, while capacity additions continue to enhance volume visibility. The commissioning of new integrated capacity and downstream projects is expected to support growth and improve product mix, particularly in higher-margin flat and automotive-grade steel. 

 

A key medium-term catalyst is the steady improvement in European operations. Ongoing cost transformation initiatives and capacity ramp-ups have materially narrowed losses, with management guiding toward breakeven in the UK by Q4FY26 and further profitability gains thereafter. Decarbonisation initiatives and the transition toward electric arc furnaces are also structurally lowering costs and carbon intensity. 

 

With strong domestic expansion, disciplined capex funding, and Europe nearing breakeven, the company is well positioned for a sustained recovery in consolidated margins and earnings over the medium term.

   

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Disclaimer: This article is by Motilal Oswal Financial Services Research Desk. Views expressed are their own.