Invest in Tata Steel Ltd: A Long-Term Strategy for Steady Growth

As of September 7, 2023, the share price of Tata Steel (TATA STEEL BSL) stands at approximately Rs. 88-90. However, it's important to consider a long-term investment strategy when evaluating this stock. Historically, stock prices can fluctuate greatly, but for investors seeking a stable and potentially profitable investment over a period of 5-10 years, Tata Steel Ltd (TATA STEEL) appears to be a more promising option.

Why Invest in Tata Steel Ltd?

Tata Steel Ltd is the entity we should consider buying instead of TATA STEEL BSL. Reasons for this include the company's strong fundamentals, a balanced approach to its finances, and the potential for future value appreciation.

Comparative Analysis with TATA STEEL BSL

TATA STEEL BSL is not as fundamentally strong as Tata Steel Ltd. In the steel sector, I am particularly bullish on Tata Steel Ltd due to several factors. Firstly, Tata Steel Ltd pays a good dividend, making it an attractive investment for income-oriented investors. Secondly, the balance sheet shows significant improvements since the acquisition of Bhushan Steel Ltd in 2018. Borrowings have been reduced by nearly 80% in just three years, and reserves have drastically increased. This indicates a healthier and more secure financial position.

Technical and Fundamental Insights

From a technical perspective, Tata Steel Ltd has shown signs of a breakout with good volume after consolidating for three months, and now it is retesting. This suggests that the stock is gaining traction and could continue to rise.

Fundamentally, Tata Steel Ltd is trading at a Price-to-Earnings (P/E) ratio of 4.2, compared to the industry average of around 12. This implies that Tata Steel Ltd is undervalued compared to its peers and could see price appreciation as the market discovers its true value.

Merger Announcement and Its Impact

Tata Steel Ltd has announced a significant move to merge Tata Steel BSL with Tata Steel Ltd in a 15:1 ratio. This means that holders of 15 shares of Tata Steel BSL will receive 1 share of Tata Steel Ltd. This decision has made the share price of Tata Steel BSL react to the movements of Tata Steel Ltd. For instance, if Tata Steel Ltd is trading at 1500, Tata Steel BSL is likely to trade around 95-100, minus any consultancy fees involved. Until this merger is withdrawn, the share price of Tata Steel BSL will remain closely tied to that of Tata Steel Ltd.

Retail investors should be wary, as the current market conditions could lead to a decline in the price of Tata Steel BSL. In the near future, the stock may move downward to around Rs. 82. It has not taken any support and has already touched Rs. 89. It is now trading below the 50-day moving average (50DEMA) and could experience a free fall if it breaks the 100-day moving average (100DEMA). Investors should trade with strict stop-loss orders to manage risk effectively.

Conclusion

Given the current market conditions and the long-term prospects of Tata Steel Ltd, holding this stock for 5-10 years could yield significant returns. As an investor, it is crucial to refrain from buying Tata Steel BSL, as it is not as solidly built as Tata Steel Ltd. By aligning your investment strategy with the strength of Tata Steel Ltd, you can ensure a more stable and potentially profitable journey in the stock market.

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