Tata Stock Slumps 2.5% As Analyst Downgrades Rating To 'Reduce'

Tata Steel’s share price has surged up over 20% in the last two months, and analysts at Kotak Securities think that the rally might be coming to an end. The stock was down on Wednesday morning along with several other metal stocks.

What Happened: The domestic brokerage firm in its latest note, downgraded the stock to “reduce” from “buy”. The brokerage said that the steel giant has witnessed a 20% rally over the past two months, primarily driven by the overall positive sentiment in the broader market. However, the analysts think that the company’s prospects do not look that attractive. The brokerage has a price target of ₹145 on the stock.

Domestically, the Tata Group is facing margin pressures, with the cost of raw materials outpacing the performance of steel prices. This is contributing to challenges in maintaining healthy profit margins in the domestic market.

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The brokerage expects Indian steel spreads to face continued pressure in Jan-March 2024, based on current market trends. This could further impact the company’s financial performance, given the significance of the steel segment to its overall operations.

Talking about the European market, the analysts expect the steel major’s ongoing challenges to continue. Another area of concern for the analysts was the allocation of capital becoming a growing concern, especially with new investments in Europe.

Considering these factors, the brokerage noted that the risk-reward ratio for Tata Steel appears unattractive at the moment. Despite the recent stock rally, the challenges in domestic and international markets, along with uncertainties in capital allocation weighs on the overall attractiveness of the stock.

Price Action: Tata Steel’s share price was down 2.26% to trade at ₹136.45 on Wednesday morning.

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