Arbitrage opportunity in Tata Steel FPO: ICICIDirect
Follow-on public offer of country's largest steel maker Tata Steel has opened for subscription. Price band is set at Rs 594-610 a share for issue 5.7 crore ordinary equity shares.
January 19, 2011 / 18:00 IST
Follow-on public offer of country's largest steel maker Tata Steel has opened for subscription. Price band is set at Rs 594-610 a share for issue 5.7 crore ordinary equity shares.
ICICIDirect.com said the price differential between the prevailing price and the offer price provides an arbitrage opportunity, in its report dated January 19. "Tata Steel has announced an FPO in the range of Rs 594-610. At the prevailing price of Rs 640, the offer price is almost at a discount of 4.6% over the market price considering the issue price at Rs 610. The price differential between the prevailing price and the offer price provides an arbitrage opportunity."The report says, "At the prevailing price, one can hedge the investment in the FPO by shorting futures. We recommend applying in multiples of 500 shares (futures lot size) in the FPO, which should be done along with short positions in the same quantity in February futures. Currently, investors can short February futures at Rs 640 levels."Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management.Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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