A year ago, Tata Steel came out with an issue of 547, 251, 605 Compulsorily Convertible Preference Shares of Rs 100 each, with a coupon of 2 per cent. The ratio of exchange decided in advance equals 6 CCPS into 1 Tisco share. This implies a conversion price of Rs 600 per share for each Tisco share, or a premium of Rs 590 per share.

With the Tisco shares more than doubling from their March 2009 low of Rs 140 per share to the current Rs 269.10 per share, the Tisco preferred too has doubled up-from Rs 26 in March 2009 to the present Rs 46 per CCPS. Thus, against a conversion price of Rs 600 per share that the original investors of the CCPS would be paying, the current conversion price works out to Rs 290 per share for holders of CCPS who have bought in from the open market. A discount of 50 per cent to issue price.

Depending upon what forecast we believe in, the Tisco stock could halve from the current levels over the next few months or it could gain sizeably. The outlook is so disparate that there is virtually no confluence point. Analysts expect the Tisco stock to fall to Rs 110, in which case both Tisco ordinary and Tisco preferred need not be bought.

However, if last weekends proclamation by Mr. Muthuraman that the company operations in India will show a 20 per cent volume growth in FY10 the Tisco stock has much further to go. Whatever we may believe in, the fact is that no one is entering the Tisco stock today either at the top or bottom but somewhere in between.

If we are momentum players then Tisco preferred seems the best. It exactly follows the Tisco ordinary but allows immense liquidity and volatility to play upon. Investors would note that the date fixed for conversion compulsorily into equity is 1st September 2009. This will have to be kept in mind while playing the Tisco stock.