Tata Chem bulls likely in for Monday blues

Such has been the frenzy surrounding the holding company’s potential public share listing that over six trading sessions through 7 March, the share price of Tata Chemicals, which owns a 3% stake in Tata Sons, zoomed 40%. 

This spike, despite falling realisations of soda ash manufactured by Tata Chemicals, was based on the premise of a valuation re-rating in case the Street assigned a holding company discount lower than 50-60% to Tata Sons.

“Bulls have been trapped as the Tata Chemicals share could fall sharply on Monday because of the news,” said Chandan Taparia, senior vice president (technical and derivatives research), at Motilal Oswal Financial Services.

On Thursday, 7 March, Tata Chemicals shares closed 11.6% higher at ₹1,315.25 apiece on NSE. The markets were closed Friday on account of Mahashivratri, when reports surfaced of Tata Sons seeking to avoid a public market listing.

Tata Chemicals’s 3% holding in Tata Sons is worth about ₹19,850 crore, Spark PWM, a subsidiary of Spark Capital Advisors (India), said in a 4 March report. As of 7 March, that was equal to almost 60% of Tata Chemicals’s market capital of about ₹33,414 crore.

Three other Tata Group companies—Indian Hotels Co. Ltd, Tata Power Ltd, and Tata Motors Ltd—own between 1% and 3% in Tata Sons. But the worth of their holdings accounts for only 7-10% of their market capitalisation. From 29 February through 7 March, their share prices increased at a more modest 0.17-14%.

The bullish momentum on Tata Chemicals has pushed the stock into a futures and options ban effective 11 March, when the markets next open for trading. 

U.R. Bhat, co-founder of Alphaniti Fintech, expects a likely fall in the share price of Tata Chemicals to erode around half of the gains raked in over the past six trading sessions.

In an F&O ban, no fresh positions can be taken. Only existing positions can be squared off. In effect, the ban would compel bulls to cut their positions in Tata Chemicals as the share price falls, adding to the downward pressure on the stock.

An F&O ban happens when a stock’s aggregate derivatives outstanding positions or open interest exceeds the market-wide position limit on the counter fixed by the stock exchange.

In Tata Chemicals, the open interest stands at 44 million shares against a marketwide position limit of 31.6 million shares. The ban will be lifted once the counter’s open interest falls to 80% of the market-wide position limit, according to Motilal Oswal’s Taparia.