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Home > Business > Stock Market News > Hot Pursuits

Steel scrips strengthen

February 19, 2003 12:50 IST

Steel scrips edged up for the second straight session on Wednesday, largely on hopes of reduction in import duty on steel in the Union Budget for 2003-04.

Most of the steel scrips were up in mid-morning trades on the BSE amid high volumes.

Tisco rose by 1.1% to Rs 157.35 on a volume of 640,000 shares in just one-and-half hours of trading. Ispat Industries leaped by 10.7% to Rs 5.65, Jindal Iron & Steel Company was up by 4.7% to Rs 88.35, Jindal Vijaynagar Steel advanced by 3.8% to Rs 5.35 and Essar Steel rose by 3.4% to Rs 9.10.

On Tuesday, too, most of the steel scrips had posted gains. Tisco gained 1.44% to Rs 155.50 on a heavy volume of 1.31 million shares. Jisco rose by 2.4% to Rs 84.35, JVSL advanced by 4% to Rs 5.15 and Essar Steel rose by 2.9% to Rs 8.80.

There has been hectic activity in steel scrips of late, after they staged a smart rally from their October 2002 low. The market cap of 9 large steel companies jumped by Rs 509.78 crore (Rs 5.09 billion), or 4.2%, in a span of just one month to Rs 12,566 crore (Rs 125.66 billion) on 18 February 2003.

The latest rally in steel scrips comes on the back of expectations of a cut in import duty on steel in the forthcoming Budget. However, there are concerns over a slight rise in the freight charges in the Railway Budget.

The import duty on steel may be reduced, in line with the government's desire to gradually bring it down to Asian levels. Meanwhile, banks and financial institutions have high exposure to some steel companies, which are plagued by huge non-performing assets. The reduction in import duty on steel may have an adverse impact on their bottom lines. Therefore, the reduction, if any, is likely to be done in phases, it is felt.

On the flip side, a greater thrust on infrastructure projects, including national highway and road way projects is likely to spur demand for steel, which augurs well for the industry.

As far as increase in freight rates is concerned, manufacturers are likely to pass on the burden to consumers in the wake of a firm trend in local and international steel prices.

There are expectations that international steel prices may rise further due to strong demand from the Chinese market.

Most steel companies came out with buoyant Q3 (ended 31 December 2002) results on the back of firm local and global steel prices. The aggregate sales of 50 steel companies were higher by 33% to Rs 11,521 crore (Rs 115.21 billion) in the quarter ended 31 December 2002 over the corresponding previous quarter. Margins virtually zoomed by 790 basis points to 16.7%, resulting in a 154% jump in operating profit to Rs 1,926 crore (Rs 19.26 billion).

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Source: www.capitalmarket.com

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