Indian steel majors, including Tata Steel, JSW Steel, Jindal Steel & Power (JSPL), and Steel Authority of India Limited (SAIL), reported weaker-than-expected performance in Q2 FY26. Softer global steel prices, rising coking coal costs, and muted demand in export markets weighed heavily on margins.
Yet, despite earnings pressure, analysts remain positive on valuations. Domestic infrastructure demand, China’s production cuts, and the Indian government’s ₹11 lakh crore capital expenditure budget are seen as strong tailwinds for medium to long-term growth. This article examines Q2 performance, valuation trends, sectoral outlook, and why investors may still see upside in India’s listed steel majors.
Q2 Performance: A Mixed Bag for Steel Companies
Revenue Pressures
Most steel companies reported a 5–12% decline in revenues year-on-year. Tata Steel, for instance, posted consolidated revenues of ₹58,000 crore in Q2 FY26, down 9% compared to the same quarter last year.
JSW Steel saw revenues fall to ₹45,500 crore, while SAIL’s top line dropped by nearly 7%. Weakness in export markets, especially in the EU and ASEAN regions, was a key driver of this contraction.
Margin Compression
Margins shrank due to higher coking coal imports, which rose to an average of $320 per tonne during the quarter. For context, this is nearly 25% higher than the average of FY25.
Operating margins for Tata Steel and JSW Steel declined by 200–250 basis points, while SAIL reported one of its lowest EBITDA per tonne in the last eight quarters, at just ₹4,800 per tonne.
Bottom-Line Weakness
Net profit also reflected the stress. Tata Steel reported profits of ₹4,200 crore, down 21% year-on-year, while JSW Steel’s profit fell by 18%. SAIL barely broke even, with profits slipping more than 60% compared to Q2 FY25.
Image suggestion: Quarterly performance chart comparing Tata Steel, JSW Steel, and SAIL
Alt text: Comparative bar chart showing Q2 FY26 financials of Indian steel majors
Caption: Quarterly results highlight revenue and margin pressures across listed steel companies.
Why Valuations Remain Attractive
Price-to-Earnings (P/E) Advantage
Despite weaker earnings, steel stocks are currently trading at P/E multiples of 6–8x FY26 expected earnings. This is well below the Nifty Metals index’s historical average of 11–12x.
Analysts at Motilal Oswal and ICICI Securities argue that the valuation gap leaves significant upside once demand normalizes.
Price-to-Book (P/B) Comfort
Many steel majors are trading close to their book values. For instance, SAIL trades at 0.9x book value, while JSW Steel is at 1.4x. Given the long-term capital investment cycle, these levels are seen as strong entry points.
Institutional Buying
Foreign Institutional Investors (FIIs) have increased stakes in steel majors over the last two quarters. For example, FIIs raised holdings in JSW Steel by 1.2% in Q2 FY26, signaling confidence in long-term fundamentals despite near-term pain.
The Demand Side: Domestic Tailwinds
Government Infrastructure Push
India’s Union Budget FY26 earmarked ₹11 lakh crore for capital expenditure, with a focus on roads, railways, and urban infrastructure. This is expected to boost domestic steel consumption by 6–8% annually.
Auto and Renewable Sectors
Steel demand from the automobile sector grew 7% year-on-year in Q2, despite weak exports. EV battery manufacturing plants and renewable energy projects are also emerging as strong growth drivers.
Real Estate Revival
Urban housing projects have rebounded, with real estate registrations in Mumbai and Delhi NCR hitting five-year highs. This provides a steady demand pipeline for long products like rebars and structural steel.
Global Factors: Opportunities Amid Uncertainty
China’s Production Cuts
China, which accounts for over 50% of global steel output, has implemented strict production curbs to meet its 2030 carbon emission targets. This has already reduced global supply by 35 million tonnes in 2025, providing Indian steelmakers with a potential export opportunity in FY26–27.
Europe’s Energy Costs
European mills continue to grapple with high energy costs, keeping exports subdued. Indian steelmakers with established export networks, such as Tata Steel Europe, can benefit if demand revives.
Risks to Watch
- High Input Costs: Coking coal and iron ore remain volatile. Any further spike could erode margins.
- Weak Export Markets: Global slowdown, especially in Europe and ASEAN, may keep exports under pressure.
- Currency Fluctuations: A stronger rupee could impact export competitiveness.
- Policy Risks: Potential safeguard duties or anti-dumping measures from importing countries.
Analyst Quotes
- “Valuations of steel stocks are reflecting pessimism, not fundamentals. With demand growth of 6–8% and strong government capex, the sector could surprise positively in FY27.” — Senior Analyst, Motilal Oswal Securities
- “Short-term earnings are weak, but balance sheets are far stronger than the last cycle. Steel majors have cut debt by ₹1.2 lakh crore in the last three years.” — Economist, ICICI Securities
Frequently Asked Questions (FAQ)
Q1: Why are steel stocks attractive despite weak Q2 earnings?
Because valuations (P/E and P/B) are at multi-year lows, offering investors entry points before demand improves.
Q2: Which steel majors are best placed for growth?
Analysts favor JSW Steel and Tata Steel due to diversified operations and stronger balance sheets.
Q3: What risks should investors keep in mind?
High coking coal prices, global slowdown, and currency fluctuations are key risks.
Q4: How much could Indian steel demand grow?
Estimates suggest 6–8% annual growth driven by government infrastructure spending and real estate revival.
Q5: Is China’s slowdown positive for Indian steelmakers?
Yes. China’s production cuts reduce global supply, creating export opportunities for India.
Conclusion
While Q2 FY26 earnings highlighted clear headwinds for India’s listed steel majors, valuations tell a different story. Lower P/E multiples, strong domestic demand, and government infrastructure investments suggest significant upside potential.
For investors, the message is clear: short-term pain could lead to long-term gains.