FIIs trimming holdings in Indian steel companies - Report

Saturday, 23 Jul 2011 |By BL

BL reported that Foreign Institutional Investors, on concerns of a weak profit outlook for the steel sector, are trimming their holdings in Indian steel firms.

As per report, the April to June quarter saw FIIs reduce their holdings QoQ in almost all steel firms including Steel Authority of India Limited, TATA Steel, JSW Steel, Jindal Steel & Power Ltd and Godavari Power & Ispat Ltd etc.

The report added that the shares dumped by FIIs have either largely been picked up the domestic institutional investors or non institutions, including individual shareholders.

The rising input costs such as coking coal and iron ore have hit the steel companies' bottom lines in the recent quarters. Analysts expect the pressure on profitability to continue in the July to September quarter as well.

Also, the inability of steel companies to pass the burden to consumers amidst an uncertain demand scenario will add up to the margin pressure. The recent hike in interest rates to curb inflation has cast a spell on the demand side. An analyst said that “There is a concern on demand side due to the slower pace of infrastructure projects. As a result, there is no pricing power with the steel producers.”

Steel makers have seen a slowdown in demand to an extent from sectors such as automobile, consumer durables and construction. While the global steel prices have seen a margin decline in the recent past, the domestic producers have managed to hold on to prices at this point in time.