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Tata group stocks come under a cloud;Good earnings key for any re-rating

If the group companies report a good set of earnings, all the controversy will be forgotten, or the buyers will come only at significantly lower price.

Updated: Oct 27, 2016, 06.42 PM IST
Cyrus Mistry ouster: Tata group stocks crack up to 9%
MUMBAI: The overhang of ongoing spat between Ratan Tata and Cyrus Mistry may continue to weigh on share price of most Tata Group companies for many weeks to come, market experts say. In just three days after Mistry was replaced as the chairman of Tata Sons, the group’s holding company, over Rs 26,000 crore in market capitalisation of Tata companies was whipped out as a result of calibrated selling in group stocks.

“Tata stocks will fail to attract new buyers as long as uncertainty and controversy continues,” said Raamdeo Agrawal, co-founder & JMD, Motilal Oswal Financial Services. “De-rating of the stocks has already happened due to the controversy.

Earnings of Tata companies will now be key for any re-rating. If they report good earnings all the controversy will be forgotten or buyers will come only at significantly lower price.”

Major fall in Tata group stocks started on Wednesday after a 5 page letter written by Mistry alleging poor corporate governance practices at Tata Sons came to light. Mistry claimed he was a lame-duck chairman and highlighted how his efforts on de-leveraging the debt laden group met with resistance.

Tata Motors so far has lost more than Rs 800 crore in market-cap, TCS saw over Rs 6,000 crore loss and Tata Steel over Rs 2,600 crore in market-cap. Indian Hotels, Tata Global, Tata Chemicals, Tata Power, Voltas and Titan were among other group companies that saw between Rs 200 to Rs 1,000 crore worth of market-cap being eroded.

Tata group stocks fell between 5-20% in the past 3 days.

“Cutting down excess debt and de-leveraging the group in the current economic environment was the move in right direction that Mistry had embarked upon,” said Samir Arora, fund manager, Helios Capital. “Markets are more upset at the way things were handled by the board of Tata Sons, which is why de-rating of stocks has happened and an overhang could continue till uncertainty fades. There are no winners to the ongoing spat but shareholders are the losers.”

Experts say that austere corporate governance practice has often been a unique selling proposition for Tata companies but the group is now faces perception crises in the stock markets.“

“The premium that Tata group companies commanded has got eroded,” said AK Prabhakar, head of research at IDBI Capital. “Companies with high debt like Tata Global, Tata Chemicals, Tata Power and Tata Steel will be the most affected.”

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