Understanding The Reasons Behind Decline in Tata Group Stock Prices

On Thursday, March 11, 2024, the shares of Tata Group experienced a significant decline, with some stocks hitting the lower circuit during the opening trading session. This drop in stock prices is linked to reports indicating that Tata Sons, the holding company of the Tata Group, is reconsidering its plans for an initial public offering (IPO).

Tata Sons, valued at $150 billion, is reportedly exploring alternative strategies to avoid proceeding with an IPO. This reconsideration is prompted by a decision from the Reserve Bank of India (RBI) in 2022, which categorized Tata Sons as an upper layer non-banking finance company, necessitating its listing by September 2025.

Despite seeking an exemption from the listing requirement, Tata Sons’ plea was rejected, leading the company to explore legal avenues for a potential resolution. The uncertainty surrounding the IPO plans has had a notable impact on various Tata Group stocks.

In the previous week, there was a surge in the market regarding the potential IPO by Tata Sons, resulting in substantial gains for various Tata Group firms, with some experiencing increases of up to 36 percent. However, these gains were reversed following speculations that Tata Sons might opt-out of going public.

Tata Chemicals, for instance, witnessed a sharp decline, reaching its lower circuit of 10 percent, while Tata Investment Corporate was also locked in a 5 percent lower circuit. Tata Power Co experienced a drop of over 4.7 percent, and other major Tata Group stocks also faced declines in the early trading session.

Kotak Institutional Equities cautioned investors, stating that recent reports of Tata Sons reconsidering the IPO should temper expectations regarding value-unlocking opportunities, particularly for Tata Chemicals.

“Recent reports that state Tata Sons is evaluating options to avoid an IPO should deflate speculation around value-unlocking at Tata Chemicals. Our fair value remains Rs 780, and we continue to expect EPS to fall by about two-thirds over FY2023-25E amid falling margins on soda ash. The recent speculative flare-up in the stock should be considered an exit opportunity,” said Kotak Institutional Equities to Sources .

Overall, the uncertainty surrounding Tata Sons’ IPO plans continues to influence investor sentiment, leading to declines across various Tata Group stocks.