Tata Motors shares to come under more pressure

There could be more correction on the cards for the stock of Tata Motors in the near term, following announcement of dismal results for the October-December 2016 quarter.

The company’s near-term future stock price (February 23 contract) closed down 9.89 per cent on Wednesday along with a 9.28 per cent jump in open interest on the NSE. A decline in price, combined with increase in open interest, indicates bearishness and confirms a downward trend as new short positions are being created. But weakness in the stock could be seen as an opportunity to buy into it, according to many experts, including foreign ones. Most brokerages have cut their earnings estimates for FY17 and FY18 but only a few, including Edelweiss Securities and ICICI Securities, have downgraded their ratings on the stock.

Elara Capital has reiterated its ‘reduce’ recommendation. As a result of the new reduced estimates, the target price stands adjusted lower by an average 10 per cent or a range of 3-17 per cent.

CLSA has cut the target price the most by 38 per cent and has the lowest target price of ₹405 on the stock.

Given the new average target price of ₹542.35, there is still an upside potential of 24 per cent. “The stock has seen a sharp 14 per cent correction in the last three months and any further correction would be an opportunity to accumulate,” said Mihit Jhaveri analyst at Emkay Global Financial Services.

Religare Institutional Research portrayed a better outlook for the company. “We expect margin recovery of 250 basis points for Q4FY17 from higher volumes, a better product mix and lower discounts. We expect strong commercial vehicle volumes on BSIV pre-buying to drive margins in Q4,” it said.

The stock of Tata Motors fell 9.41 per cent intraday — the biggest fall in nearly five years — in the cash market on the NSE. Tata Motors’ DVR fell a little more, by 9.86 per cent. With Wednesday’s fall, the stock has corrected 14 per cent in the past two days.

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