With Tata Motors’ shares on a tear of late, analysts tracking the company say its Differential Voting Rights (DVR) shares could be a good buy at current levels.
DVRs have reduced voting rights compared to ordinary shares, and hence trade at a discount to the ordinary shares. To make up for reduced voting rights, holders of DVRs get an additional dividend over that on ordinary shares.
Tata Motors DVRs are presently trading at a 49 percent to ordinary shares, and this discount could narrow, say market watchers.
Purvesh Shelatkar, head of institutional broking, Monarch Networth Capital told cnbctv18.com that Tata Motors DVRs could be a good bet right now following the recent run-up in the ordinary shares.
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Tata Motors shares have surged close to 50 percent over the last week on improved market share in the passenger vehicle segment and its ambitious plans for electric mobility.
Tata Motors DVR was at about 65 percent discount to the ordinary shares 7-8 months ago, and that has been narrowing steadily as the market outlook on Tata Motors improved.
When the ordinary shares gave a breakout sign on the technical charts on October 12, the DVRs were trading at 52.4 percent discount to the ordinary stock and currently that gap has reduced to 49.2 percent, said Arpan Shah, Senior Research Analyst, Monarch Networth Capital.
This gap could shrink further in coming days, Shah added.
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At the current spread, positional players who are bullish on Tata Motors’ growth outlook can definitely look to accumulate Tata Motors DVR shares over ordinary shares as the business growth momentum can lead DVR to outperform ordinary shares in the longer term, said Abhilash Pagaria of Edelweiss Alternative Research.
“Interestingly the average spread in last 4 years was around 49 percent while before 2018 when the business was doing phenomenally well and the DVR was part of Nifty, the discount used to be 25-35 percent,” Pagaria said.
He believes that there is a possibility of the discount narrowing down to 35 percent again.
"Tata Motors DVR continues to be a good bet for investors seeking richer dividend yields while playing the capital appreciation story,” said Nirav Karkera, head of research, Fisdom.
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Many institutions have added DVR in their portfolio in the past few months, and the most recent one to add DVR shares, according to filings, is ICICI Prudential MF, an analyst at a domestic brokerage noted.
From the near-term perspective, technical analysts though believe DVR shares have also run up quite a bit lately and one should wait for it to correct before entering.
One should enter Tata Motors DVR when it falls around Rs 200 levels and then they could see gains up to Rs 370 even, said Kkunal Parar, Vice President-Research, Choice Broking.
Technical chartists believe that the strong uptrend in the ordinary shares of Tata Motors could continue but the recent upmove has made investors cautious and may trigger intermittent profit-taking.
(Edited by : Santosh Nair)