Tata Steel vs Vedanta: Which stock is a better pick amid market correction?

Shares of metal and mining majors Tata Steel and Vedanta have been under pressure during the ongoing volatility in the market arising out of the economic slowdown and the Russia-Ukraine war. The falling demand for steel, oil and gas, iron ore, copper, power, nickel and aluminium among other products of the two companies is reflected in the share prices of the two firms. Stock of Tata Steel has plunged 24.53 per cent and Vedanta has lost 11 per cent in a year. On a year-to-date basis, Vedanta shares have declined 24.1 per cent and Tata Steel stock has plunged 13 per cent.

With the Indian market correcting during the last five sessions in line with weak global cues, Tata Steel stock has dipped below the Rs 100 mark. In a week, the stock is down 7.51 per cent. Similarly, Vedanta stock has lost 7 per cent during the period.

ALSO READ: Infosys vs TCS vs Wipro: Which stock should you buy as IT giants hit 52-week low?

Growing concerns about a possible global recession and uncertain demand outlook from China have sparked worries over the outlook of metal stocks. Steel sector in the neighbouring nation is facing challenges from weaker than expected demand from the property sector. Covid-19 pandemic-related restrictions also continue to disrupt construction activity.

Weak sentiment in the sector is also reflected in the metal index.

ALSO READ: Tata Steel shares trading below Rs 100 level for fourth session, more downside likely?

The BSE Metal index was trading 374 points lower at 17,321 in today's session amid growing worries about the risk of recession. In a year, the index has lost 12.85 per cent or 2,533 points. The metal index is down 10 per cent or 1,929 points in 2022.

On September 22, the board of Tata Steel cleared the amalgamation of its seven subsidiaries with itself. Tata Steel Long Products, Tata Metaliks, The Tinplate Company of India, TRF, Indian Steel & Wire Products, Tata Steel Mining and S&T Mining are the firms which will be merged with the parent company. The development, though, positive has failed to enthuse the stock. The stock, which traded at Rs 103 level on September 23, has fallen below Rs 100 today. Tata Steel stock declined 2.51 per cent today to Rs 95.15 against the previous close of Rs 97.60 on BSE. The Tata Group stock has been falling for the last three sessions.

ALSO READ: 'Jugaad is our strength': Vedanta's Anil Agarwal vouches for the 'unique skill' that sets Indians apart

Similarly, shares of Vedanta have been falling for the last four sessions amid correction in the market. The metals and mining major on September 13 picked Gujarat for its semiconductor project, the first major step in its $20 billion joint venture with Taiwan's Foxconn.

ALSO READ: Semiconductor plant: Why Vedanta picked Gujarat over Maharashtra - Anil Agarwal explains

Enthused by the development, the stock, which closed at Rs 270.25 on September 12 rose to Rs 315 on September 15.

However, it has fallen back below Rs 300 level, weighed by the correction in broader markets. In today's trading, Vedanta stock fell 2.08 per cent to Rs 256.80 against the previous close of Rs 262.25 on BSE.

On May 21 this year, the government raised export duty on steel products. Duty on iron ore was raised by up to 50 percent and some steel intermediaries to 15 per cent to facilitate domestic availability. The move led to a bloodbath in metal stocks on May 23 (Monday) with Tata Steel leading the losses. The stock fell 14 per cent intraday followed by losses in JSW Steel, JSPL and Vedanta shares.

In terms of earnings, Vedanta reported a marginal 4.6 per cent rise in consolidated net profit at Rs 4,421 crore for the quarter ended June against a consolidated net profit of Rs 4,224 crore in the year-ago period. Consolidated income during the April-June quarter rose to Rs 39,355 crore from Rs 29,151 crore last year.

The Tata Group firm reported a 21 per cent fall in its consolidated net profit in the first quarter of the current financial year. The steel major registered a consolidated net profit of Rs 7,714 crore for the quarter ended June 30, 2022 against Rs 9,768 crore in the corresponding quarter of FY22. At current level, Vedanta stock is trading 41 per cent lower to the 52 week high of Rs 440.75 hit on April 11, 2022. On the other hand, shares of Tata Steel have lost 33.28 per cent from their 52 week high of Rs 142.62 hit on October 19,2021.

ALSO READ: Tata Steel merger is just the beginning! N Chandrasekaran's game is to consolidate further

With both stocks witnessing significant correction recently, here's a look at what analysts said about the outlook of these stocks.

Ravi Singh, vice President and head of Research, Share India favours Tata Steel shares over Vedanta.

"The outlook of Tata Steel is better than Vedanta from long-term perspective. The recent merger of Tata Steel is going to impact the group in a positive manner as it will strengthen the group holding. Also, the amalgamation may prove in more operational efficiencies and collaboration between the entities. Tata Steel is aiming at better facility utilisation and faster execution which if achieved will boost the Tata Steel's growth numbers over long-term perspective. The Tata Steel stock is also reflecting the investors' confidence in the counter with a surge in the volumes which may push the stock to Rs 110 levels in the short term and Rs 115 with a long-term perspective," said Singh.

Abhijeet from Tips2trade said, "A global slowdown which could spiral into a worldwide recession has expectedly led to a massive sell off in majority of the sectors including metal stocks. Even though Tata Steel and Vedanta are fundamentally good companies, technically a further 5-10 per cent dip close to Rs 93 and Rs 243 levels respectively can be used to buy for smaller targets in the coming days."

Tirthankar Das, Technical & Derivative Analyst, Retail, Ashika Stock Broking is inclined toward Tata Steel from medium to long-term perspective.

"Federal Reserve hiked rates by 75 bps in its recent meeting. Hence, the fear of slowdown in economic growth has been playing mayhem in the metal sector. Within that space, Tata Steel and Vedanta are attractively priced considering both the stocks had witnessed a substantial amount of correction to be considered on a preferred risk reward scenario. Tata Steel has witnessed a retracement to the extent of 50% and fluttering around the zone while Vedanta Ltd has retraced deeper by 61.8 per cent. Hence, on an overall basis, Tata Steel is reflecting strength. On the oscillator front, the weekly 14-period relative strength index of both the stocks are trading around 40-45 level but Tata Steel seems better placed as it on the verge of breaking past the downward sloping trendline since August 2021. The weekly MACD for both the stocks are also trading below the zero level line. However, for Tata Steel, the indicator has provided a breakout from the downward sloping trendline reaffirming strength. Both stocks are on the formation stage of downward sloping channel line. Against that background, Tata Steel seems well placed as third leg of pattern has already completed and downside seems limited till Rs 75. While in case of Vedanta, only second leg of the pattern has ended and downside can be deep towards  Rs 175. The volume trend has shown an accumulation in Tata Steel for the past few months thus indicating of an increased enthusiasm to push prices higher while the latter lacks volume participation. Hence, it can be expected Tata Steel to witness a strong upmove and head towards  Rs 140- Rs 150 in medium to long-term perspective (measuring implication of the bullish downward sloping channel)."

WATCH: Akash Ambani in TIME100 next list of leaders