Tata Steel rises on FII short covering

Tata Steel scrip rose 5.3% to Rs 411.75, even though the company had to price its GDR issue at a slight discount to market price. Talk is that the rally was sparked off by frantic short covering of positions by foreign institutional investors, who were caught on the wrong foot by the better-thanexpected response to the company���s GDR issue.

These investors had gone short on Tata Steel futures, then sold their holdings in the company, assured that they would be able to pick up the same quantity at a lower price by subscribing to the GDR issue.

But the good response to the company���s GDR issue meant that most foreign institutional investors were unable to buy back through the GDR issue, what they had sold in the local market.

Meanwhile, some fund managers are questioning the wisdom of paying out a generous dividend (Rs 16 per share for FY09), when it was clear that the company would have to raise capital shortly. Tata Steel would end up forking out around Rs 1,300 crore (including dividend distribution tax) towards the dividend.

Had the company decided against paying out any dividend, the equity dilution could have been reduced by half, point out these fund managers.

Contributed by Santosh Nair