The Hindu Business Line : Fall in Tata Steel shares may tell on equity funds

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Kolkata Feb. 1 Net asset values of a clutch of equity funds are likely to feel the impact of the declining Tata Steel stock, which dropped over 10 per cent in the first trading session after the Indian steel company bagged Corus and again by 1.6 per cent a day later.

Tata Steel, among the most tracked large-cap stocks by fund managers who had preferred this index constituent over other several iron & steel counters, accounts for a key part of many funds' portfolios, a look at the latest holding patterns suggests.

Declining Trend

The stock on Thursday closed at Rs 457.40, down by Rs 7.50, after opening at Rs 469.90. It touched a day's low at Rs 451.60. About 1.2 crore shares made up the trading volume on the NSE. The declining price trend was in line with the previous day's movement: on Wednesday, it had closed at Rs 464.90, down by over Rs 50.

As marketmen put it, the immediate trigger for the decline is the sheer dimension of the Corus acquisition and the possible cash outflow this will require. The issue that the offer may have ramifications for the Indian company's financial risk profile will now have to be addressed, it is felt.

According to mutual fund circles, Tata Steel has been a closely observed company, thanks to the position the integrated steel manufacturer occupies in the sector.

For investors, it clearly has been a heavyweight in terms of its contribution to the indices.

Credit Watch

Among the funds that have considerable exposure to Tata Steel are Templeton India Growth, Franklin India Bluechip, Bonanza Exclusive Growth, ING Vysya ATM (Against The Market), LIC Equity, Reliance Vision and ING Dividend Yield.

Allocation to the stock, at the end of December, ranged from 3-6 per cent. For instance, it accounted for 3.66 per cent of Franklin India Bluechip's assets, involving 19.36 lakh shares, according to data supplied by distribution firm Plexus Management.

On the debt side, credit rating agencies have generally put Tata Steel on credit watch. Standard & Poor's, for instance, has said it maintained its BBB long-term corporate credit rating on credit watch with negative implications. It also retained its BBB foreign currency rating on Tata Steel's senior unsecured bank loans of $750 million and $500 million on credit watch with negative implications.

The rating agency, however, pointed out that a successful acquisition may "potentially improve the business profile of the merged entity", courtesy new products and market segments and "prominence in the rapidly consolidating global steel industry."

S&P has said it will require more information on the long-term means of financing in resolving the credit watch placement issue.

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