Markets uneasy on some Tata shares

Following rumors that Tata Sons, the conglomerate’s investment holding firm, is considering ways to avoid pursuing the initial public offer (IPO) route as required by the Reserve Bank of India, investors in numerous Tata group equities are crossing their fingers.

It was long known that Tata Sons, as an upper-layer NBFC, would need to list by September 2025 in order to comply with an RBI requirement. However, when investment banking Spark Capital published a research last Monday pinpointing Tata Chemicals as the sole possible play in the IPO, investors began purchasing Tata equities, and Tata Chemicals in particular. As it was thought to be the largest benefactor of the mammoth IPO, Tata Chemicals surged 31% over the previous three trading days.

The only practical option to get exposure to the potential value unlocking of Tata Sons’ shareholding, according to Spark, was via Tata Chemicals. According to calculations made by Spark, Tata Chemicals’ 3% ownership in Tata Sons is valued at around Rs 19,850 crore, or 80% of the company’s market value. Within the holding firm, Tata Power has a 2% stake, Indian Hotels 1%, and Tata Motors and Tata Chemicals around 3% apiece.

The increase in Tata Chemicals’ shares contributed to a gain of about Rs 76,000 crore for other group companies.

Stock exchange data shows that as of March 7, the market capitalization of 25 Tata group firms increased to Rs 32.29 trillion from Rs 31.53 trillion on March 4. Tata Investment Corporation (15.8%) and Automobile Corporation of Goa (26.8%) were the other two largest gainers.

But with reports over the weekend suggesting that Tata Sons is now considering a number of options, including moving its stake in Tata Capital to another group company and becoming a debt-free entity to shed the label of core investment company and upper layer non-banking finance company, the legs to the rally might be taken away when markets open on Monday.

The Life Insurance Corporation of India’s Rs 21,000 crore would have been much less than Tata Sons’ IPO, which if it had been done, would have been the largest. According to Spark’s study, Tata Sons’ potential IPO valuation, based on the group businesses’ present market capitalization, may be between Rs 7-8 trillion.

Prior to the IPO news, a number of these equities had been performing poorly for the preceding month or even longer. Tata Chemicals, for instance, had increased by only 2.3% over the previous month (until March 4) and 3% over the previous three months. In a similar vein, prior to the increase, Tata Power and Tata Technologies were essentially flat.

But over the last month, a few Tata group companies have been growing steadily. TRF, for example, has increased by 98.8%, while Tata Investment Corporation, Automotive Stampings and Assemblies, and Trent have all increased by 52.4%, 51.5%, and 29.4%, respectively.