Tata chemicals share price down 8%: Tata group stocks volatile: Should you Sell or Hold the stocks?

The sharp correction in Tata Chemicals Share  on Wednesday is being attributed to the lifting of ban in the F&O segment leading to short positions being created. Experts said that the the sharp gains in Tata Chemicals stock had been fueled by expectations of the company benefitting from value unlocking post listing of Tata Sons. However Tata Sons evaluating options to avoid an IPO is expected to have should dispellled the expectations.

Tata Chemicals share price had seen sharp gains of almost 40% in first week of March to closing highs on 7th March since a Spark Capital report suggested that the fundamental value of the listed Tata Chemicals firm is around 5-7 times FY25 PE (estimated price to earnings), which might potentially increase if the investment in Tata Chemicals is liquidated during or after the first public offering (IPO) of Tata Sons. The street values Tata Sons at approximately ₹10-11 lac crore suggested the report. 

However analysts at Kotak Institutional Equities in 11th March Report had said that the news reports on Tata Sons evaluating options to avoid an IPO should deflate speculation around value-unlocking at Tata Chemicals . Their Sum of the Parts based fair Value for Tata Chemicals  stood at Rs780.  Kotak expect earnings per share to fall by about two-thirds over FY2023-25 since the margins on soda ash are falling. Hence Kotak had recommended flare-up in the stock to be considered an exit opportunity. 

Deepak Jasani Head of the Research (retail) at HDFC Securities said that since the share price was being considered as inflated short positions may have been formed post lifting of F&O ban , which could be reason for Correction in Tata Chemicals share price today.

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It is not only Tata Chemicals but all Tata group shares are seeing volatility. Tata Investment Corporation share price also was down 5% locked in lower circuit. Among other stocks of the Tata group companies, Tata Steel , Tata Motors , Tata Consumer Products , Tata Power share price declined more than 2% while Tata Communications  and   Tata Power were trading more than 1% down.  

Indian Hotels also was trading in the red though Tata Consultancy Services share after yesterdays sharp correction of more than 4% post selling of around ₹9000 crore shares by Tata Sons in a block deal ,managed to trade marginally up. Some Tata group stock bucking the trend included Voltas trading with marginal gains while  Rallis India  share price was up more than 2%.

The volatility in share prices of Tata group companies is also attributed to news flows around Tata Sons IPO.  The Spark Capital report on  Tata Sons in early March suggested that based on RBI classifying Tata Sons as an upper layer NBFC last year, it will be mandatory for it to list on the exchanges by September’ 2025. Some of the listed holding firms may be required to liquidate their holdings within the massive parent conglomerate, as the event is anticipated to simplify the intricate group holding structure.

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Of the four Four tata group companies Tata Motors, Tata Chemicals, Tata Power and Indian Hotels,  Tata Chemicals was suggested by analysts to be the biggest beneficiary of the value unlocking. Approximately 80% of the market capitalization of the Tata Chemicals may be owned by Tata Sons compared around 16–21% of the other three firms’ market capitalization. Based on predictions of Bloomberg earnings, Spark Capital had determined that Tata Chemicals’ intrinsic price is around 11 times its FY25 estimated price to earnings (PE). 

As the volatility in share prices continues, Jasani added that markets are also volatile and the same is also adding to volatility in Tata group share prices too. Volatility in markets may continue till election are over and results are declared. Hence the volatility in Tata group shares may also persist till then

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions

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Published: 20 Mar 2024, 02:57 PM IST