Tata Group stocks plunged Friday, with Tata Chemicals heading the list of decliners, after Tata Trusts opposed the decision of the Tata Sons board to reappoint N Chandrasekaran as chairman and called the move illegal.
Tata Chemicals fell 11.5% to hit a low of Rs 689.40 on the National Stock Exchange (NSE), while Tata Consultancy Services, India's largest technology outsourcing company, declined nearly 4% to Rs 2,104.90.
Tata Motors Passenger Vehicles fell 3.4%. Tata Investment Corp. retreated 2.5% to Rs 700.95, while Tata Technologies fell 5.24% and Tata Elxsi slipped 1.5%.
These stocks had surged earlier this week on expectations that the central bank's rejection of a Tata Sons application to surrender its licence as a shadow lender would prompt the listing of Tata Sons, the holding company of India's most diversified conglomerate.
Seven listed group companies together hold around 11.94% of Tata Sons. Tata Steel holds 3.06% and Tata Chemicals holds 2.53%, said Gaurav Garg, head-research, Lemonn.
"The difference isn't exposure to Tata Sons; it's that Tata Steel's stake is small change against a Rs 2.3 lakh crore business, while Tata Chemicals carries a comparable stake on roughly a fourteenth of the market capitalisation," Garg said. "In the small-cap proxies, the listing narrative is a large share of the price. That cuts both ways, and today (Friday) it cut one way."
On Thursday, the Tata Sons board approved a fresh five-year term for Chandrasekaran and decided to start the process for the holding company's long-awaited initial public offering (IPO). Noel Tata, the chairman of Tata Trusts that majority-owns Tata Sons with a 66% stake, opposed the reappointment of Chandrasekaran, calling it a "legal nullity."
Analysts said Friday's selling in Tata stocks reflected investor concerns over the unresolved leadership dispute.
The recent correction in Tata Group stocks needs to be viewed from two key perspectives, said Sunny Agrawal, deputy vice president-Fundamental Research, SBI Securities.
"Any clarity on N Chandrasekaran's continuation as chairman would be sentimentally positive, as it would provide continuity to the group's growth strategy and capital allocation plans and the potential listing of Tata Sons remains an important value-unlocking trigger, particularly for companies that hold a stake in Tata Sons," Agrawal said.
He also said that Tata Chemicals and Tata Motors Passenger Vehicles could see meaningful value unlocking if Tata Sons is listed at the expected valuation of around Rs 10 lakh crore.
Tata Chemicals' stake could translate into a value of nearly Rs 30,000 crore, which is significantly higher than its current market capitalisation, while the corresponding value for Tata Motors Passenger Vehicles would be meaningful relative to its market cap.
However, over the longer term, individual businesses are likely to be driven predominantly by their own fundamentals. Within the Tata Group, Tata Consumer, Titan and Indian Hotels are positioned for healthy growth, while Tata Motors Commercial Vehicles appears relatively better placed within the auto segment, analysts said.
Nelco is another company worth tracking, given its exposure to the emerging satellite communication opportunity, they said.
Analysts believe that the outcome of Thursday's board meeting has little impact on the operating numbers of Tata Steel, Tata Power or Tata Consumer.
"The key issue now is whether the matter moves to a tribunal or is resolved between the board and the Trusts. A negotiated settlement could narrow the discount, while litigation could prolong the uncertainty - with the impact likely to be reflected in the group's listed companies," Lemonn's research head Garg said.
