Tata Motors shares fall nearly 7% in six sessions amid forex fluctuation

Tata Motors shares have fallen 6.63% in six consecutive sessions amid foreign exchange fluctuations and fears of losses on account of unsold stock of BS III vehicles

In the last one month, Tata Motors shares have shed 7.7% and so far this year, the scrip is down 6%.. Photo:  Mint
In the last one month, Tata Motors shares have shed 7.7% and so far this year, the scrip is down 6%.. Photo: Mint

Mumbai: Shares of Tata Motors Ltd have fallen for six consecutive sessions by 6.63%, amid foreign exchange fluctuations coupled with fears of losses on account of unsold stock of Bharat Stage III (BS III) vehicles in the domestic market. In the last one month, the shares have shed 7.7% and so far this year, the scrip is down 6%.

On Wednesday, the scrip closed at a two-month low to Rs443.55 a share -- a level last seen on 15 February, down 0.12% from its previous close.

“The stock has primarily been hit by the volatility in the foreign exchange,” said Nitesh Sharma, analyst at Phillips Capital India. The GBP has been appreciating against the dollar which in turn will mount pressure on margins of Jaguar Land Rover Automotive Plc in the future, he said.

For the entire year (fiscal 2017-18), Sharma is expecting close to 6% hedging losses. The losses will reverse from next year if the currency stays at the current levels. JLR is a major exporter of vehicles out of from UK, therefore a weakness in the currency is an opportunity for the firm to rake in more profits.

Following the referendum in June and an announcement of Britain’s exit from Europe on 23 June, the GBP from June till date has depreciated 12.8% against the US dollar. So far this year, it’s up 3.92% and since 1 April has risen 2.2%. “Whatever benefit the company was getting because of a depreciated GBP, is now getting partially reversed,” Sharma said.

British prime minister Theresa May called on Tuesday for early UK elections on 8 June, saying she needed to strengthen her hand in divorce talks with the European Union by shoring up support for her Brexit plan. After the announcement, the pound rose to a two-and-a-half-month high against the US dollar.

For the December quarter, JLR reported a mark-to-market loss of GBP 455 million. An analyst at a domestic brokerage, who declined to be identified, said he is not as worried about the GBP appreciation as he is about Tata Motors’s hedging policy which is “conservative and long-term”, making the company vulnerable to “black swan” events. “If the volumes do not pan out as per expectation, it can throw the hedging in a tizzy. That is what happened in the December quarter,” he said.

“An appreciating pound doesn’t help Tata Motors,” said Mahantesh Sabarad, head retail research at SBI Cap Securities. He pointed out that an anticipation of a weak fourth quarter earnings of the standalone entity because of stock pile of BS III vehicles, could also be another reason for sell off (of stocks).

In a severe blow to automakers, the Supreme Court banned the registration and sale of BS III vehicles from 1 April, resulting in huge stock of vehicles that comply with older emission norms.

Spooked by the uncertainty, domestic institutional investors have been selling off shares. Their stake in Tata Motors since the June quarter has declined by 309 basis points to 38.71% from 41.80%, according to the shareholding structure as on 31 March

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