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Suresh Krishnamurthy

SHAREHOLDERS of Tata Investment Corporation can consider booking profits partially. Tata Investment Corporation is an investment company, which invests about 80 per cent of its net worth in equities. Investors have to treat the stock as that of a close-end mutual fund.

The company's net asset value per share is now likely to have risen sharply from the level of Rs 233, at end-March 2002, to more than Rs 300 now. About 35 per cent of the net worth was invested in the stocks of Tata companies at end-March 2002. With stocks of Tata companies doing well since then, the realisable value of the company's portfolio would have increased since then. The rise in equity capital by about 17 per cent would have reduced the rise in per share realisable value. But the rise would still be significant.

However, the price of the company's stock has risen quite sharply. Thus, the market price's discount to the net asset value per share would have declined substantially. In February 2003, the discount was about 60 per cent. It is likely to have narrowed down to about 30 per cent now.

At 30 per cent or higher, the market price's discount to net asset value is still high. However, investors are unlikely to get their hands at the discount since the company will not be wound up. In addition, the company is not aggressive in booking profits. It is more likely to hold on to the stocks that have appreciated. This will hurt the realisable value of the holdings in the event of a market downturn.

Dividends per share declared by the company rose from Rs 4.50 in March 1998 to Rs 6 in March 2003. The growth in dividends is likely. However, that too is likely to be steady and stable as in the past. As such, the stock's expected dividend yield is now less than 4 per cent. Given this backdrop, it would be better to book profits partially now.

Given the steep discount to the net asset value at which the stock mostly trades and the generous discount declared each year, the stock can be considered for acquisition when the valuation of the stock declines.

The stock can be bought when the dividend yield of the stock is between 5 per cent and 6 per cent. In this context, the rise in liquidity of the stock at the bourses is a positive development. Trading volumes have now risen from an average of a couple of hundred shares to more than ten thousands now.

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