NMDC Steel Ltd Downgraded to Strong Sell Amid Technical and Fundamental Concerns

Quality Assessment: Weak Long-Term Fundamentals

NMDC Steel’s quality rating remains under pressure due to its poor long-term fundamental strength. The company’s average Return on Capital Employed (ROCE) stands at a concerning 0%, signalling an inability to generate adequate returns on invested capital. Over the past five years, operating profit has declined at an annualised rate of -37.79%, underscoring a sustained erosion of profitability. This weak growth trajectory is compounded by a negative EBITDA, which raises questions about the company’s operational efficiency and cash flow generation capabilities.

Moreover, the company’s debt servicing ability is strained, with a Debt to EBITDA ratio of -1.00 times, indicating a high leverage position relative to earnings before interest, taxes, depreciation, and amortisation. Such financial stress increases the risk profile of the stock and weighs heavily on its quality grade.

Valuation Concerns: Trading at Risky Levels

From a valuation standpoint, NMDC Steel is trading at levels considered risky compared to its historical averages. The stock closed at ₹41.64 on 4 February 2026, down 1.68% from the previous close of ₹42.35. Its 52-week high was ₹49.62, while the low was ₹28.35, indicating significant price volatility. Despite a modest one-year return of 4.89%, this performance lags behind the Sensex’s 8.49% gain over the same period, highlighting relative underperformance.

Profitability has also deteriorated sharply, with net profits falling by 52% over the last year. This decline, coupled with the stock’s elevated valuation multiples, suggests that investors are paying a premium for uncertain earnings prospects, thereby increasing downside risk.

Financial Trend: Mixed Signals Amid Positive Quarterly Results

While the long-term financial trend remains weak, NMDC Steel has reported positive financial performance in recent quarters. The company declared positive results for four consecutive quarters, with net sales for the latest six months reaching ₹6,397.59 crores, reflecting a robust growth rate of 75.67%. Additionally, the inventory turnover ratio for the half-year period is at a healthy 4.00 times, indicating efficient inventory management.

Institutional investors hold a significant 20.48% stake in the company, signalling confidence from knowledgeable market participants who typically conduct thorough fundamental analysis. However, despite these encouraging short-term indicators, the broader financial trend remains negative due to the company’s inability to sustain profitability and growth over the long term.

Technical Analysis: Downgrade Driven by Sideways Momentum

The primary catalyst for the downgrade to Strong Sell is the deterioration in NMDC Steel’s technical grade, which shifted from mildly bullish to sideways. Key technical indicators reveal a mixed and weakening picture. The Moving Average Convergence Divergence (MACD) on both weekly and monthly charts is mildly bearish, signalling waning momentum. The Relative Strength Index (RSI) shows no clear signal on weekly or monthly timeframes, reflecting indecision among traders.

Bollinger Bands indicate sideways movement on the weekly chart and bearish trends monthly, suggesting limited price volatility but a downward bias. Daily moving averages remain mildly bullish, but this is insufficient to offset the broader negative signals. The Know Sure Thing (KST) indicator is bullish weekly but lacks a monthly trend, while Dow Theory assessments show mild weekly bullishness but no monthly trend confirmation. On-Balance Volume (OBV) also shows no trend, indicating a lack of strong buying or selling pressure.

Overall, the technical landscape points to a stock struggling to gain upward traction, reinforcing the downgrade decision.

Comparative Performance: Lagging Behind Benchmarks

When compared with the Sensex, NMDC Steel’s returns have been underwhelming. Over the past month, the stock declined by 8.96%, significantly worse than the Sensex’s 2.36% drop. Year-to-date, the stock is down 5.92%, while the Sensex has fallen by only 1.74%. Although the stock posted a positive 4.89% return over the last year, this pales in comparison to the Sensex’s 8.49% gain. Longer-term returns are unavailable, but the Sensex’s 3-year and 5-year returns of 37.63% and 66.63% respectively highlight the stock’s relative underperformance in the sector.

These comparative metrics underscore the challenges NMDC Steel faces in delivering shareholder value relative to broader market indices.

Outlook and Investor Considerations

NMDC Steel’s downgrade to Strong Sell by MarketsMOJO reflects a comprehensive evaluation across quality, valuation, financial trends, and technical parameters. While the company has demonstrated some short-term sales growth and operational improvements, these have not translated into sustainable profitability or positive long-term returns. The technical indicators suggest a lack of upward momentum, and valuation metrics point to elevated risk levels.

Investors should weigh the company’s high institutional ownership, which may provide some stability, against the fundamental and technical headwinds. The stock’s recent price volatility and underperformance relative to the Sensex further caution against aggressive positioning at current levels.

Given these factors, NMDC Steel remains a challenging proposition for investors seeking stable growth and capital appreciation in the ferrous metals sector.

Summary of Ratings and Scores

As of 3 February 2026, NMDC Steel’s Mojo Score stands at 29.0, with a Mojo Grade of Strong Sell, downgraded from Sell. The Market Cap Grade is 3, reflecting a mid-tier market capitalisation within its sector. The technical downgrade was the primary driver of the overall rating change, with fundamental weaknesses reinforcing the negative outlook.

Price and Volume Snapshot

The stock’s price range on 4 February 2026 was between ₹39.74 and ₹43.84, closing at ₹41.64. This represents a decline of 1.68% on the day. The 52-week price range remains wide, from ₹28.35 to ₹49.62, indicating significant volatility over the past year.

Sector Context

Operating within the ferrous metals industry, NMDC Steel faces competitive pressures and cyclical demand fluctuations. The sector’s performance is closely tied to infrastructure development and industrial activity, which remain uncertain in the near term. This macroeconomic backdrop adds to the challenges faced by the company in improving its financial and technical standing.

Conclusion

In conclusion, NMDC Steel Ltd’s downgrade to Strong Sell is justified by a combination of deteriorating technical indicators, weak long-term fundamentals, risky valuation levels, and mixed financial trends. While short-term sales growth and institutional backing provide some support, the overall outlook remains negative. Investors should exercise caution and consider alternative opportunities within the ferrous metals sector that offer stronger fundamentals and technical momentum.

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