Marketmen say that global political tensions have affected the broad market as well as steel major Tisco and foreign institutions are selling in the latter.
In fact, Tisco was among the largest losers in the Sensex by early afternoon on Tuesday, dropping 2.12% to Rs 145.30. By 12:35 IST, over 538,000 Tisco shares were exchanged on BSE. The scrip has ebbed 8.12% to its current level from Rs 158.15 on 19 February 2003.
Players had built huge buy positions in the derivatives market for the month of February 2003 and with the future and option contract for February 2003 expiring on 27 February 2003, players didn't get the opportunity to completely square off positions, which is why they carried forward their positions to the March 2003 contract. But with the market proving lacklustre, players are offloading their contracts in the F&O market. This is why the cash market is witnessing a weakness.
As per market talk, Birla Sun Life is believed to be an active seller in Tisco.
Korean steel manufacturer POSCO's dismal results may also be affecting the scrip's fortunes.
In any case, Tisco is considered a good pick at the current levels following its strong fundamentals and expectations of good future growth in the current year.
The government's major thrust on infrastructure development in Union Budget 2003-04 should hold the company in good stead, increasing demand for steel and enabling steel companies to post improved bottom lines.
The finance minister has said that initial government funding for new infrastructure projects will total Rs 2,000 crore (Rs 20 billion) for the year. Principally, investments will be made in railways, airports and sea ports through an innovative funding mechanism.
The Railway Budget has also proved beneficial, what with the cut in freight rates, enabling considerable savings for steel companies. Freight costs account for nearly 11% of the total cost of production of steel companies, and nearly 50% of their cargo is transported by rail . After the reduction in freight, steel companies are expected to save nearly 2.8% of total freight costs and 0.32% of the total cost of production. There would also be savings in freight on scrap and iron ore as well, but the savings will differ from company to company depending on the raw material mix and the distance from mines.
Apart from the cut in freight rates for steel, companies will also benefit from reduction in freight on raw materials. Analysts estimate another 0.1-0.2% savings from reduction in freight on raw materials. However, savings here would differ depending on the company's lead distance to markets and rail-road mix.
The Indian steel sector has witnessed a turnaround over the past year following sustained demand for steel (in both domestic and international markets) coupled with a huge hike in steel prices over the last year. Last month, steel majors effected a hike in flat steel prices by Rs 1,000-1,400 per tonne, the second major price hike in 2003. The market was, in fact, expecting a major price hike by flat steel producers as well.
The overall steel sector is expected to continue its commendable performance in the next fiscal year due to the rise in steel prices in domestic as well as international markets.
For the third quarter ended 31 December 2002, Tisco posted an impressive net profit of Rs 280.23 crore (Rs 2.8 billion) as against Rs 34.54 crore in the corresponding period of the previous year. Net sales rose by 27% to Rs 2,152.69 crore (Rs 21.52 billion) from Rs 1,694.63 crore (Rs 16.94 billion) in DQ 2001.
BSE code: 500470