2 stocks Vikash Singh is bullish on from metal sector

"The prices have been falling, but we have to understand that we are entering monsoon season and there is always a seasonal weakness. This is also coincided with the bad Chinese data and the Chinese price fall also," says Vikash Singh, Phillip Capital

We understand that the steel prices back home are a bit on the weaker side.

Could you tell us what is happening on the ground? What is the demand and how is the pricing of domestic steel?
The prices have been falling, but we have to understand that we are entering monsoon season and there is always a seasonal weakness. This is also coincided with the bad Chinese data and the Chinese price fall also. So, while on the parity, we continue to readjust ourselves lower because of the cheaper imports data, but a good part is also contributed by the supposedly restocking which happens prior to monsoon in India. So, in June also, you can expect some price correction going forward as well.

Of course, there is a bit of a softness when it comes to the monsoon period as you talked about as well. But if you had to make your top recommendations at this point of time from the entire metals basket, what does the pecking order stand at?
We are recommending SAIL, largely because coking coal prices have come down significantly, plus iron ore cost inflation would also not impact them.

So, our expectation is their margin expansion would be good. They would give some volume growth also while Tata and JSPL currently lacks on the volume growth side. So, SAIL should do a bit better and if iron ore prices continue to correct, then JSW should also benefit going forward.

Let us get in sense from you then as to what the outlook is in terms of the commodity prices, whether or not you are expecting some sort of a rebound and do you think that we will see global concerns continuing to persist and play spoilsport?
See, what we feel is that a large part of price correction has already been done. Some of the seasonal price correction because depending on the severity and longevity of the monsoon may continue for maybe one month.

But then Chinese profitability has come down very low. It is almost closer to zero, plus if you look at the Chinese production, our expectation that the second half production would be lower than first half that would bring in some demand-supply balance and they also have to make money.

So, effectively, what we feel, though we would have a lag effect impact and the 1Q margins might be a little bit lower, bouncing back in 2Q with the aid of coking coal, second half would definitely be better and we do not expect a very significant price correction in the international market at this point of time.