The brokerage has raised target price on Tata Steel to Rs 405 from Rs 340 and raised target price on JSW Steel to Rs 220 from Rs 185.
Tata Steel and JSW Steel are down 18% and 7% respectively in the past one month versus the Nifty which has fallen 4% on moderating fundamentals and global risk-aversion.
CLSA said the domestic demand has improved from the first quarter but the outlook remains uncertain.
The brokerage said iron ore integration augurs well for Tata Steel in a rising domestic iron ore price environment and its focus on deleveraging will ease balance sheet concern but growth is likely to be delayed as the outlook for Europe remains uncertain and its valuation is now reasonable.
However, for JSW Steel the risk to costs is skewed to the upside for both coking coal and domestic iron ore, deleveraging hinges on the ramp-up of capacity expansion and its valuation remain stretched at current levels.