Close [X]

Cyrus Mistry's exit: Should you buy or sell Tata Group shares?

 

In this file photo of Ratan Tata with Cyrus Mistry. Tata Sons on Monday removed Cyrus Mistry as its Chairman, nearly 4 years after he took over the reins of the group. Tata makes a comeback, taking over as the company's interim boss for 4 months.

In this file photo of Ratan Tata with Cyrus Mistry. Tata Sons on Monday removed Cyrus Mistry as its Chairman, nearly 4 years after he took over the reins of the group. Tata makes a comeback, taking over as the company's interim boss for 4 months.

 

  Tata Group stocks, such as Tata Motors, TCS, Tata Steel, Tata Communications, Tata Metaliks, Titan Company and Tata Chemicals reacted sharply in early deals, and lost 1% - 3% a day after Cyrus Mistry was removed as the chairman of the Group. However, Tata Motors and Titan recovered some lost ground as trade progressed. By comparison, the benchmark indices – the S&P BSE Sensex and the Nifty 50 were trading 0.2% lower.

 

The development, which came after market hours on Monday, saw the 48-year old Mistry being dropped after being at the helm since December 28, 2012, and was replaced by Ratan Tata as the interim chairman.

So should you use this opportunity to exit Tata Group stocks or are they a good contrarian bet? Can these scrips underperform given the uncertainty within the conglomerate?

Also Read: Scorecard: Focus on consolidation and debt reduction

Analysts say though the development can see a knee-jerk reaction in the stocks in the immediate term, there should not be any fundamental impact of Cyrus Mistry’s exit on the performance going ahead. 

“In my view, there should not be any fundamental impact on the Tata Group companies due to leadership change. The problems of major group companies are either inherited and / or have to do with adverse economic conditions. For example, problems of Tata Steel are overcapacity in steel industry in China and lack of comparative cost advantage for its European subsidiary,” feels G. Chokkalingam, founder & managing director of Equinomics Research & Advisory.

Also Read: Trusting the family: A short history of ownership

“Similarly for TCS, the base effect of India's IT exports and slowdown in the growth of western world have led to poor single digit dollar revenue growth for TCS. Tata Power is not an exception - whole power sector in India is going through adverse economic conditions. Hence, scope for the role of leadership in changing the fortunes of Tata Group companies in the short-to-medium term is limited,” he adds.
Also Read: Why was Mistry shown the door? Here are the possible theories

Over the medium-term, however, a lot would depend on how the boardroom battle plays out. In case this goes on to become a long-drawn legal battle between Pallonji Group and Tata Sons, analysts say, then it could be very bad for Tata Group stocks for next 6 - 12months.

Also Read: Singhvi, Salve retained to advise Tatas

"If Cyrus Mistry goes to Court, then all group stocks would react negative and next few months can be bad. On the other hand, if the matter is settled within the boardroom, then it would be the best thing to happen for Tata Group shareholders," points out A K Prabhakar, head of research at IDBI Capital.

Since each company, experts say, operates in a unique environment and has a different set of sector / industry-related dynamics playing out, which will determine how the stocks perform over the long-run. That apart, the leadership team for each company is already in place, which should not hamper operations.

"In my view, this is negative in the near-term from a sentiment point of view. In terms of operations of the group, there will be little change because it already has a leadership team in place. As long as the group is able to find a successor in six months from now, it should be business as usual; and investors need not worry," says Jigar Shah, chief executive officer, Maybank Kim Eng Securities.