Shares of steel companies rallied on Tuesday with the Nifty Metal index gaining over 3 percent as analysts expect a further rise in steel prices going ahead.

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The stock price of Tata Steel and JSW Steel rallied over 5 percent to hit a fresh 52-week high, while SAIL gained more than 4 percent.

Brokerage firm CLSA said after the significant outperformance of steel stocks over the past year, it saw a further upside in the steel stocks as risk-reward remains favourable.

"We expect upward revisions in consensus as current estimates imply a Rs 10,000-12,000/tonne correction in steel prices versus spot. With domestic prices trading at a 10 percent discount to import parity, we believe such sharp correction is unlikely unless demand drops sharply,” CLSA said in a note

Further, China’s focus on lowering emissions is likely to reduce production, and while its demand outlook is uncertain, supply cuts should support prices, the brokerage firm said.

CLSA raised estimates for Indian steel companies mainly on better realisations. It maintains Buy on Tata Steel and raised the target price to Rs 950 per share from Rs 860 earlier. CLSA upgraded JSW Steel to Outperform from Sell and also increased the target to Rs 490 per share from Rs 340.

Meanwhile, JP Morgan expects steel price hikes in April. It increased FY21-23 estimates by 10-35 percent.

JP Morgan is Overweight on Tata Steel and raised the target to Rs 1,100 from Rs 960. It is Overweight on JSW Steel and raised the target price to Rs 510 from Rs 430 earlier. It also maintained Overweight on SAIL and raised the target to Rs 105 from Rs 90 per share.

Moreover, speaking to CNBC-TV18, Manish Gunwani, CIO-Equity Investments, Nippon India Mutual Fund said that many metal stocks were still trading near 2010 levels.

"If Chinese supply clampdown continues then metals stocks will rally hereon. Risk reward is still attractive for metal stock," Gunwani said.

At 11:40 am, shares of Tata Steel were trading 4.47 percent higher at Rs 800.90, JSW Steel were trading 4.36 percent higher at Rs 464.35 and SAIL were trading 4.63 percent higher at Rs 80.25 on the BSE.

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