Tata Sons-Mistry spat: How mutual fund houses view the corporate tussle
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Mumbai: Whether Cyrus Mistry can continue to be chairman at several Tata group companies will depend on how institutional investors vote at the special shareholders’ meeting called by parent Tata Sons Ltd to decide Mistry’s fate.
The Ratan Tata-led Tata Sons, which ousted Mistry as chairman of the Tata group holding company last month, now wants to remove him as chairman of Tata group companies. Mistry, who was only the second Tata Sons chairman not to bear the Tata surname, was accused of seeking to wrest control of group companies among other things. Mistry has denied the charges.
In several group companies, where Mistry continues to be chairman, domestic institution ownership ranges from 5.13% in Tata Consultancy Services Ltd to 38.9% in Indian Hotels Co. Ltd.
One clue to their thinking can be found from the way mutual fund ownership has changed since Mistry was sacked.
In half of listed Tata companies, mutual fund holdings has increased between September and October, according to data compiled by ValueResearch, a mutual funds tracker.
In Tata Global Beverages, for instance, mutual funds holdings increased 13 percentage points and in Tata Motors by 6.7 percentage points.
To be sure, these funds may have raised their holdings before the standoff and later trimmed some of it.
Mutual funds release holdings data only at the end of the month and daily numbers are unavailable. Secondly, note that the Tata stocks fell sharply after the spat and some funds might have bought stocks as prices declined.
“Our investment strategies change only if there are doubts on the stability of the company, fundamentals have undergone a radical change or in case if there is a large fraud. In the case of Tata group companies, fortunately this is not the case,” said the head of a mid-sized fund house. “However, a clearer picture would emerge only by the end of November,” he added, requesting anonymity.
Among fund houses, the largest exposure to Tata group’s listed companies is with HDFC Asset Management Co. Ltd, whose four large cap equity schemes had a cumulative exposure of Rs4,601 crore at the end of October.
The role of these domestic institutions comes into greater play, since under the Companies Act, passing an ordinary resolution for removing a director requires a simple majority of those present.
“The key to passing or defeating a resolution rests on the unity of non-promoter shareholders. Unless all non-promoter shareholders unite and vote against the resolution, it is unlikely to be defeated,” said J.N. Gupta, founder, proxy advisory firm Stakeholders Empowerment Services (SES).
A proxy voting committee of mutual fund houses is currently discussing this issue, said two fund managers, including the one cited earlier. They declined to be named.
“Fund houses are generally cautious on their voting policy as they have to consider that the value of their holding is not eroded. If they ‘rock the boat’ too much their investment gets impacted. In such a scenario, you can expect the fund houses to either vote in favour of stability or not vote at all if they think that the step is not in spirit of good corporate governance,” said a third fund manager, declining to be named.
A head of a fund management company said he will support Tata Sons as it is in the highest interest of the investment.
“We have to choose between supporting either of the two good guys. However, we have invested in Tata on the basis of the group name. Some companies may be debt heavy, but I am confident that if the need arises, Tata Sons can sell TCS shares to pay off debt,” the person said, requesting anonymity.
Ami Shah in Mumbai contributed to the story.