Why is NMDC Steel falling/rising?

Recent Price Movement and Sector Context

On 08 December, NMDC Steel’s share price closed at ₹39.77, down ₹1.39 or 3.38% from the previous session. This decline is part of a broader downtrend, with the stock having lost 5.26% over the past week and underperforming the steel sector, which itself fell by 2.23% on the day. The stock has been on a consecutive five-day losing streak, cumulatively dropping 5.26% during this period. Intraday, the share touched a low of ₹39.52, marking a 3.98% decline from the previous close, with heavier trading volume concentrated near these lower price levels. This suggests selling pressure dominating investor sentiment.

Despite the stock trading above its 200-day moving average, it remains below its shorter-term averages including the 5-day, 20-day, 50-day, and 100-day moving averages. This technical positioning indicates a weakening momentum in the near term. Additionally, liquidity remains adequate, with the stock’s average traded value supporting trades of approximately ₹0.14 crore, ensuring that the price movements are supported by reasonable market activity.

Fundamental Performance and Institutional Interest

On the positive side, NMDC Steel has reported encouraging quarterly results for three consecutive quarters, with net sales reaching ₹3,389.90 crore, representing a robust growth of 37.7% compared to the previous four-quarter average. This sales growth indicates some operational strength and market demand resilience. Furthermore, institutional investors hold a significant stake of 20.47%, suggesting that knowledgeable market participants maintain confidence in the company’s prospects or fundamentals to some extent.

Long-Term Weakness and Profitability Concerns

However, these positives are overshadowed by the company’s weak long-term financial health. The average Return on Capital Employed (ROCE) stands at 0%, signalling an inability to generate adequate returns on invested capital. Operating profit has declined at an alarming annual rate of 37.79% over the past five years, highlighting deteriorating profitability. The company’s debt servicing capacity is also under strain, with a high Debt to EBITDA ratio of -1.00 times, indicating negative earnings before interest, taxes, depreciation, and amortisation. This negative EBITDA status raises concerns about the firm’s operational efficiency and financial stability.

Over the last year, NMDC Steel’s stock has delivered a negative return of 17.69%, significantly underperforming the Sensex, which gained 4.15% in the same period. Profitability has also contracted sharply, with profits falling by 52% year-on-year. This combination of declining earnings and poor stock performance reflects investor apprehension about the company’s future growth and value creation potential.

Comparative Underperformance and Market Sentiment

NMDC Steel’s underperformance extends beyond the recent year. The stock has lagged behind the broader BSE500 index over the last three years, one year, and three months, indicating persistent challenges in delivering shareholder value. The broader steel sector’s decline by 2.23% on the day further compounds the negative sentiment, as sectoral headwinds weigh on individual stock performance.

Investor Participation and Trading Activity

Interestingly, investor participation has been rising, with delivery volumes on 05 December increasing by 5.42% compared to the five-day average, reaching 8.47 lakh shares. This uptick in delivery volume suggests that while the stock price is falling, some investors are still actively trading or accumulating shares. However, the weighted average price being closer to the day’s low indicates that selling pressure remains dominant, and buyers are not yet pushing prices higher.

Conclusion: Why NMDC Steel Is Falling

The decline in NMDC Steel’s share price as of 08 December is primarily driven by its weak long-term fundamentals, including zero ROCE, negative EBITDA, and deteriorating operating profits. Despite recent sales growth and institutional backing, the company’s inability to generate sustainable profits and service debt has eroded investor confidence. This is compounded by the broader steel sector’s downturn and the stock’s consistent underperformance against major benchmarks like the Sensex and BSE500. The technical indicators and trading patterns further reinforce the bearish sentiment, with the stock trading below key moving averages and volumes concentrated near lower price points. Collectively, these factors explain the ongoing fall in NMDC Steel’s share price.

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