Tata Motors share demerger: Why a 40% dip won't have much impact on your portfolio

Tata Motors share demerger: With the record date for the Tata Motors demerger fixed today, October 14, the automaker's stock reflected a 40% fall from its last closing price. On BSE, Tata Motors shares opened at ₹399, down from Monday's close of ₹660.90.

While the fall may seem significant, worrying investors, they must note that this is just notional in nature. It's mainly due to the spin-off of the commercial vehicle (CV) business from the passenger vehicle (PV) business into a separate entity.

In simple terms, Tata Motors has separated its commercial vehicles division into a new company. Due to this, the original Tata Motors stock now only reflects the value of the passenger vehicle business. The drop in share price shows that the commercial vehicle part has been moved out, not that the company has lost value overall.

Indian stock exchanges conducted a pre-market trading session between 9 am and 10 am to discover the new share price for Tata Motors. The price discovered during this window helped determine the valuation of the spun-off commercial vehicles unit, based on the difference from Monday’s closing price.

Tata Motors Demerger Record Date

Earlier this month, Tata Motors set October 14 as the record date to decide which shareholders are eligible to receive shares of its newly separated CV business.

This means that anyone who owned Tata Motors shares on the said record date will get one share of the new company, TML Commercial Vehicles Ltd (TMLCV), for every one Tata Motors share they held.

The demerger officially took effect on October 1, but the stock price adjustment happened today. Shares of TMLCV are expected to start trading on the BSE and NSE sometime in November.

Brokerage Nuvama Wealth Management told clients in a note Monday that it valued Tata’s commercial vehicle business at ₹274 ($3.09) apiece or ₹1 trillion, as per a Bloomberg report.

Tata Motors Share Price Trend

Following the spin-off, Tata Motors shares, which reflect the PV business of the company, rebounded. The automaker's stock hit a high of ₹421.45, a premium of 4.5% over its adjusted price of ₹403.01.

As of 11.10 am, Tata Motors share price traded at ₹416.10, up 4.3% on the BSE.

Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.