Tata Group’s defeat to have little impact on stock market

Bloomberg Singapore | Updated on December 19, 2019 Published on December 19, 2019

The Tata Group’s shock defeat in the biggest corporate feud will hardly have any impact on the record-breaking rally in the stock market, which marked its second consecutive record-high close on Wednesday.

Equities may see some knee jerk reactions after a court ordered the $110 billion conglomerate to reinstate the chairman it fired in 2016. But the fight to control the salt-to-software group will not change how it is run or the outlook for India equities in the long term, market participants said.

Tata Sons Ltd, the holding company for the group, has four weeks to appeal the ruling. The company said in a statement on Wednesday that it “strongly believes in the strength of its case and will take appropriate legal recourse.”

Shares in Tata Consultancy Services rose 1% on Thursday, while those in Tata Motors and Tata Steel were little changed as of 9:29 am in Mumbai. Tata Motors plunged 3% on Wednesday.

Short-term pain

“There will be some knee-jerk reaction in the group’s stocks for the short term due to uncertainty on leadership, but this will not affect the fundamentals of the group’s stocks or India in the long term,” said Chokkalingam G, MD and Founder at Equinomics Research & Advisory in Mumbai.

“Even if Mistry comes, the group will continue to improve its business by running the companies efficiently,” Chokkalingam said. He continues to maintain his firm’s long position in TCS.

No market risk

“It will not become a risk for the broader market because the large companies of the group are independent and performing well,” said Aneesh Srivastava, Chief Investment Officer at IDBI Federal Life Insurance Co.

The court case will create some uncertainty on plans to turnaround the companies, which are not doing well like Tata Motors, he added.

Appeal soon

Tata Sons will have enough time to appeal against the judgement, and possibly even get a stay on its implementation, Jefferies Financial Group LLC’s analysts Arya Sen and Ankur Pant wrote in a note on Wednesday, maintaining their buy rating on TCS.

“However, Mistry would be reinstated as a Director at Tata Sons and the three Tata companies including TCS with immediate effect,” the note added.

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Published on December 19, 2019
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