The Hindu Business Line : <I>Sterlite turns active</I>

Chennai April 5 Sterlite Industries has been witnessing surge in its share price, which has seen it move up from Rs 459.2 to Rs 466.10 in the last one week. Apart from a firm trend in international metal prices, two other factors are also at work. Its recent inclusion in the NSE's S&P CNX Nifty index is one and the fast approaching deadline of April 11, after which the company becomes eligible to exercise the call option to pick up the residual Government's stake in Hindustan Zinc, is the other. However, after hitting an intra-day high of Rs 477, the stock today closed at Rs 466.10 against the previous day close of Rs 469.50 with heightened activity.

Sterlite Industries and Reliance Industries replaced Jet Airways and Oriental Bank of Commerce in the Nifty from April 4.

Index funds

According to market participants, index funds, which invest in index stocks, have to shuffle their portfolio to mimic the index basket. Currently, about 15 index funds are tracking Nifty besides two exchange-traded funds - Nifty BeEs of Benchmark and Sunder of UTI Mutual Fund.

As regards the exercise of the call option, the act is, however, subject to the condition that the Government of India does not exercise its own right to make a public offering of its remaining interest or sell part of its stake to Hindustan Zinc employees. As the deadline approaches, hopes are building up that the Government might not exercise its option and thus allow Sterlite to buy out the equity stake. This has triggered interest in the stock from a section of market participants, say brokers.

In 2002, the Government sold 26 per cent in Hindustan Zinc to Sterlite for Rs 445 crore, which acquired another 20 per cent through an open offer. Later, the company raised its stake by another 19 per cent through its first call option.

The company is the only integrated zinc producer in India; its refined zinc production capacity was 4.11 lakh tonnes per annum in 2005-06, lead production capacity 85,000 tpa and ore treatment capacity was at 6.2 mtpa.