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While Tata Sons Ltd’s stake increases in the Tata Chemicals Ltd stock is giving a good lift to the latter’s fortunes, investors should still watch for demand recovery. The stock, which was hovering around 300-320 levels for six months till early November, shot up about 60% in the past month, touching a 52-week high.

After Tata Sons hiked its stake by 2.6%, its holding in Tata Chemicals is at 37.19%. This is likely to shore up investor confidence in the firm. Further, there is an enhanced focus on the chemicals business after it hived off its consumer division in March.

Still, much of the longer-term recovery hinges on an increase in global demand. Tata Chemicals saw mixed performance across regions in Q2. While India sales clocked some gains, UK revenues came in flat. Volumes and realizations were low across markets and hence, revenues in the US and Africa were subdued. As a result, its Q2 consolidated revenues slipped about 2%.

On the other hand, demand recovery in the domestic market could be better than global markets, driven by soda ash demand for detergent and auto industries. Demand pace of other geographies is likely to remain slow, analysts had noted after its Q2 results. Still, analysts have cut FY21 revenue and operating profit expectations due to a slow global recovery, and low soda ash volumes. The stock gained 3.7% on Monday.

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