Tisco's fall on Wednesday has been precipitated by a technical weakness, marketmen say, after players had built huge buy positions in the derivatives market.

The share of the largest private sector steelmaker in the country and Tata group flagship lost 1.04% to Rs 147.45 by 11:40 IST. Over 800,000 Tisco shares were exchanged on BSE by then. Tisco has been on the decline of late, losing 6.6% from Rs 158.15 on 19 February 2003.

Dealers say the fall on the counter is the result of a technical weakness. Players had built huge buy positions in the derivatives market (there are estimates that the open position is 3 times the daily volumes) and with the future and option contract expiring tomorrow (27 February 2003) players are squaring off these positions, which is why the cash market is witnessing weakness.

Dealers feel , in any case, that the stock is a good pick at the current levels following its strong fundamentals and expectations of good future growth in the current year. Also, there are expectations that steel prices will be hiked in the near future.

However, the latest feeling that freight rates may be hiked by 10-15% in the Railway Budget may also be pressuring the stock. Freight of raw materials is a significant cost component for steel companies. During the first 10 months of FY 2002-03, freight earnings have gone up by Rs 3,000 crore (Rs 30 billion) from Rs 20,000 crore (Rs 200 billion) in the same period last year.

However, analysts feel the freight rate hike should not be a problem for steel makers and the company could easily pass on the hike to consumers.

The Indian steel sector has witnessed a turnaround over the past year following sustained demand for steel coupled with a sustained hike in steel prices over the last year. This month, Tisco reported a hike in flat steel prices by Rs 1,000-1,400 per tonne, effecting a second major price hike in 2003. The market was, in fact, expecting a major price hike by flat steel producers.

Analysts feel Tisco will outperform the overall steel sector in the current year due to the sustained rise in steel prices in the domestic as well as in the international markets. Market share and revenues are expected to improve in the current year, with revenues increasing by 10-15%. The company will also prove to be a major beneficiary following high value addition, increasing bottom line in 2003.

For the third quarter ended 31 December 2002, Tisco posted an impressive net profit of Rs 280.23 crore 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