Top 4 Indian Stocks Primed to Benefit from China's Economic Revival

It is often said, “When the US sneezes, the world catches a cold.” This phrase underscores how deeply connected global economies are, and the same can now be said about China, the second-largest economy in the world. As China’s economy shows signs of recovery, its ripples are expected to be felt far and wide. Recently, following the US Federal Reserve’s substantial interest rate cuts, China’s central bank, the People’s Bank of China (PBOC), has taken steps to ease its monetary policy. Alongside, the Chinese government has unveiled a significant stimulus package, signaling efforts to revive the struggling economy.

The anticipated revival of China’s economy, driven by government intervention, is likely to boost demand in several key industries, particularly in infrastructure construction and manufacturing—sectors heavily dependent on metals. With China being one of the largest consumers of steel and other metals globally, metal prices could rise, offering a potential turnaround for Indian steel companies that have experienced underperformance in recent times. The resulting higher demand from China could positively impact steelmakers’ pricing, imports, and profit margins.

The global steel Industry is expected to face a shortfall in supply as demand continues to rise. As a result, Indian steelmakers, with projected capacity additions of about 23 million tonnes from 2023 to 2027, may find themselves in a favorable position to meet the growing demand. In light of these developments, this article will explore the top Indian companies in the steel and metals sector that stand to benefit from the increased demand for steel and other metals in China.

1. Vedanta: A Diversified Natural Resources Leader

Vedanta Ltd tops the list as a major player in India’s natural resource sector. This diversified company has a vast presence in metals, oil, and gas across India and other countries, including South Africa, Namibia, Liberia, and the UAE. Vedanta’s core business includes the exploration, production, and sale of zinc, lead, silver, copper, aluminum, iron ore, and oil. The company also has additional operations in steel manufacturing, commercial power generation, and port operations.

India remains the largest contributor to Vedanta’s revenue, accounting for around 65% of its total earnings, while countries like China, Malaysia, and the UAE make up the remainder. With plans to expand its operations globally, including achieving 100% self-sufficiency in bauxite, alumina, and coal for its aluminum operations, Vedanta is well-positioned for future growth.

Financial Overview (2020-2024):

Vedanta has demonstrated significant financial resilience, with an impressive quarterly revenue of Rs 352.4 billion, marking a 6% year-on-year (YoY) increase. The company also achieved cost reductions of 20%, boosting its profit margins. The operating profit surged by 47% YoY to Rs 102.8 billion, while its profit after tax increased by 54% YoY to Rs 51 billion. Moving forward, Vedanta’s focus on backward integration and expanding its zinc production globally should fuel long-term growth.

2. Jindal Steel & Power: A Versatile Steel Producer

Jindal Steel & Power Ltd (JSPL) is another key player in the Indian steel industry that is poised to benefit from rising steel demand. JSPL, part of the JSW Group, manufactures and sells a wide range of iron and steel products, including hot-rolled and cold-rolled steel, galvanized steel, electrical steel, TMT bars, and wire rods.

The company’s strong focus on domestic demand, coupled with its ability to adapt to changing market conditions, makes it a top contender for capitalizing on increased global steel demand. Despite facing some recent challenges, JSPL has shown strong revenue growth, with a YoY sales increase of 14% in Q1 FY25.

Financial Overview (2020-2024):

Jindal Steel’s revenue for Q1 FY25 rose to Rs 136.1 billion, with an 8.2% YoY growth. The company reported an EBITDA of Rs 28.3 billion and a 43% QoQ increase in profit after tax. Its emphasis on enhancing operational efficiency and prioritizing domestic demand over exports will likely support future growth in the evolving global steel market.

3. Hindalco: A Global Player in Aluminum and Copper

Hindalco Industries, part of the Aditya Birla Group, is the world’s largest aluminum rolling and recycling company and a leading copper manufacturer. The company is well-integrated across the value chain, serving industries such as construction, automotive, and packaging. Hindalco’s diversified product offerings, coupled with its strategic expansion into value-added products, position it for continued success, especially with the growing demand for sustainable and recyclable materials.

Hindalco has also made strides in the energy storage sector by signing an agreement with Charge CCCV (C4V), a leading battery manufacturer, to supply battery-grade aluminum foils for lithium-ion batteries.

Financial Overview (2020-2024):

Hindalco reported a revenue decline of 3.2% YoY in FY24, yet maintained a steady net income of Rs 101 billion. The company’s focus on downstream expansions and value-added products is expected to enhance profitability in the long run, making Hindalco a top pick for investors looking to capitalize on global trends in aluminum demand.

4. Steel Authority of India (SAIL): A Public Sector Giant

Steel Authority of India (SAIL) is a major player in India’s steel industry and operates under the government’s Maharatna status. SAIL produces a wide range of steel products that cater to industries such as infrastructure, power, oil, gas, and irrigation. Its ability to meet domestic and international steel demand gives SAIL a competitive advantage in a global market where supply may fall short of demand.

In recent years, SAIL has focused on improving operational efficiency and expanding its product range. Despite facing some challenges in FY24, SAIL remains optimistic about the future, particularly as government infrastructure spending is expected to drive domestic steel demand.

Financial Overview (2020-2024):

SAIL reported a turnover of Rs 237.6 billion in Q1 FY25, with an improvement in EBITDA of 16% YoY. Although the net profit declined, the company expects better performance in the coming quarters, driven by higher domestic demand and government infrastructure projects. SAIL has set ambitious targets for steel production and sales in FY25, along with significant capital expenditures for expanding its operations.

Conclusion: Positioning for Growth Amid Global Economic Shifts

The potential revival of China’s economy, spurred by government stimulus and monetary easing, presents promising opportunities for the global steel and metals industry. Indian companies like Vedanta, Jindal Steel & Power, Hindalco, and Steel Authority of India are well-positioned to benefit from the increased demand for metals and steel, both domestically and internationally. However, investors should remain cautious and carefully assess the broader economic landscape, considering factors such as global trade dynamics, economic policies, and market demand.

While these companies hold promising prospects, it’s essential for investors to make informed decisions based on thorough research and an understanding of the current market environment.