31-05-2012, 04:37 PM
Study on Risk – Return Analysis of steel sectors with BSE INDEX
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Industry profile
The Indian steel industry has come a long way since liberalization. Even so, its performance so far has not been to the global standards. Whatever competitive strengths the industry has today appear to be derived from its rich raw material base and low wage rates. Otherwise, high funding and infrastructure costs coupled with low productivity and investment in technology have stymied its overall comparativeness. Unless there is a paradigm shift from competing on factor endowments or conventional comparative advantages to competing on superior products and processes, the industry’s objective to position itself globally will remain will remain elusive.
The history of steel-making in India can be traced back to 400 BC when the Greek emperors used to recruit Indian archers for their army who used arrows tipped with steel. Many more evidences are there of Indians’ perfect knowledge of steel-making long before the advent of Christ. Archaeological finds in Mesopotamia and Egypt testify to the fact that use of iron and steel was known to mankind for more than six thousand years and that some of the best products were made in India.
Industry Performance
This section gives a detailed analysis of steel industry in India. It looks into the factors that have influenced the industry over a period of time, like steel production and raw materials, steel consumption, and export-import of steel products etc. It also puts forth a comprehensive analysis on the fluctuating performance of the Indian steel industry.
Need for competitiveness
Steel has long been recognized as a cyclical industry. It has been characterized by a cycle of 3-5 years duration. The industry had gone through the most difficult years between 1998 and 2002 due to overcapacity, poor demand growth and declining tariffs.
The difficult times prompted the industry to cut costs, restructure business and move up on the value chain for survival.
National business environment
The iron and steel industry witnessed major policy changes since 1992 with the removal of price and distribution controls. The reforms also made way foreign trade and investment. And tariff protection was reduced from over 100% to 5% throwing the industry to global competition. These policy changes brought in substantial private investment and state-of-the-art technology in the steel sector. Substantial reduction in tariffs and regular global boom-bust cycles have forced the industry, especially the Steel Authority of India Limited, Tata Iron and Steel Company and Rashtriya Ispat Nigam (Vizag Steel) to cut costs and upgrade technology. As a result the industry grew at much higher rates than in the previous forty years, and major steel producers namely, SAIL, TATA STEEL, RINL, Essar, JVSL, Ispat and Bhushan have gained cosiderabel competitive strengths over years.
Indian Steel Companies now looks to make oil out of coal:
FOUR leading Indian industrial groups Jindal, Essar, Tata and Bhushan Steel have had exploratory talks with SASOL of South Africa for converting coal into oil, which could become a multi-billion dollar industry.
SASOL, which has operated CTL (coal-to-liquids) plants since the 1950s, reckons that its technology is competitive with oil at $ 40/barrel. The SASOL conversion process also yields chemical by-products (such as olefins and alcohols), carbon dioxide and surplus electricity, and, if these are optimized, the technology might be able to compete with oil even at $25/barrel. However, $40 is a safer benchmark.
SUGGESTIONS AND CONCLUIONS
Risk and return analysis:
• As per risk and return analysis it is advisable that comparing to all companies it is better to invest in BHUSHAN STEEL which is showing good returns with certain lower risk when compared other companies which is either having negative returns or less returns with high risk.