DVRs find favour with investors

During the past three months, DVRs of Jain Irrigation, Future Retail and Gujarat NRE Coke have more than doubled

OOn Thursday, shares with differential voting rights, or DVR shares, were in demand, rallying up to seven per cent. However, their main shares closed flat on bourses.

The DVRs of three companies — Tata Motors, Jain Irrigation Systems and Future Retail — closed one-seven per cent higher on BSE, compared with a 0.18 per cent, or 44-point, fall in the Sensex.

“Most DVRs are being quoted at a discount compared to their main shares and these carry a preferential dividend option, too. So, all this makes these shares more attractive to investors. This is one of the main reasons why these stocks have seen a steady rise,” says K Subramanayam, assistant vice-president (institutional research), Asit C Mehta Securities.

A DVR share is akin to ordinary equity shares, but with fewer voting rights. Typically, companies issue DVR shares to prevent hostile takeovers and dilute voting rights. Also, these shares help strategic investors looking at a major investment in a company, but with fewer voting rights.

Globally, DVRs are usually traded on a par or at a marginal discount to their main shares.

Through the past three months, DVRs of Jain Irrigation Systems, Future Retail and Gujarat NRE Coke have more-than doubled.

The Tata Motors DVR, which surged 10 per cent to a record high of Rs 326 in intra-day trade on BSE on Thursday, closed seven per cent higher at Rs 316. In the past three months, it has rallied 66 per cent, against 14 per cent gains in its main/underlying stock.

Analysts expect the rise in DVRs to continue, but advise investors to be selective while taking a fresh call. “I think the rally in these stocks could continue on the back of a dramatic improvement in investor sentiment. So, the rise in the days ahead will ensure the premium gap between the DVRs and the main shares starts narrowing,” says Subramanayam. “Among the lot, the Tata Motors DVR looks attractive at current levels. Jain Irrigation is showing strength due to promise by the Modi government on agriculture/ irrigation-related reforms. However, at current levels, I would be a little wary about this DVR. Future Retail and Gujarat NRE Coke can be avoided for now.”

G Chokkalingam, founder and managing director of Equinomics Research and Advisory, feels discounts to the main shares have attracted investors to DVRs. “In a nutshell, people are now trying to find valuation shelter under these stocks. I am comfortable buying the Tata Motors DVR at current levels,” he says.