Web Exclusive: Bye-bye Tata Group stocks?

TCS,Tata Steel,Tata Motors underperform benchmark indices

Tata Group stocks – TCS, Tata Steel, Tata Power, and more recently, Tata Motors that is nearing a six-month low, have been hammered badly at the bourses since the past few sessions.

As compared to around three per cent fall in the benchmark indices (Sensex and Nifty), Tata Motors has shed 8.3 per cent, Tata Steel has lost 7.5 per cent, TCS has slipped 6 per cent and Tata Power has skidded 5.7 per cent in the last one week.

So, why have the markets suddenly turned so bearish on these counters? Is there any reason to be alarmed and exit these stocks? Is it bye-bye Tata Group stocks, or should you actually go ahead and buy?

Sample this. After a dismal performance by Infosys and a crash in its share price, TCS results provided much needed relief. While analysts in general have responded positively to TCS’ results, Kotak Securities have downgraded the stock from ‘ADD’ to ‘REDUCE’.

As regards Tata Motors, Jaguar Land Rover (JLR) posted lower global sales than expected in June 2012 at 28,215 units, below market expectations for at least 29,000 units.

On July 09, Standard & Poor's Ratings Services had revised its outlook on Tata Power. "The outlook revision reflects our expectation that Tata Power's cash flow and financial risk profile could deteriorate over the next six to nine months because the company has breached a debt-to-equity ratio covenant on loans to its Mundra project," said Standard & Poor's credit analyst Rajiv Vishwanathan.

"The availability of loans to the project, which Tata Power's 100 per cent-owned subsidiary Coastal Gujarat Pvt. Ltd. (CGPL) controls, could therefore be limited," he stated.

So, what should you do then?

Says Kishor Ostwal, CMD, CNI Research, “There is no specific reason as to why these stocks are being pounded. A rate cut by the Reserve Bank of India is round-the-corner and the first segment to react is the rate-sensitive sector. From the auto space, Tata Motors will lead the gains. The festive season post monsoon will see an uptick in demand. So, the auto stocks will rally.”

“The stock has corrected quite sharply. One should stay invested for now and even buy from an investment perspective,” he adds.

“Tata Motor’s out-performance till now was purely on the back of JLR numbers. Now that there is a slowdown in China, the numbers will be impacted. However, from the current levels, I don't see much downside,” says Ambareesh Baliga, chief operating officer of Way2Wealth Brokers, an investment consultancy.

“The Euro slowdown is going to negatively impact the stock price of Tata Steel in the next two – three quarters. So, there is not much upside from the current levels. On the other hand, TCS is the best bet in the IT pack. However, I am sceptical about the entire IT space as the visibility factor is very low for the next couple of quarters,” Baliga adds.

Arun Kejriwal, Founder, Kejriwal Research and Investment Services feels that the the slowdown in the Euro-zone is very clear and is evident from the hammering Tata Steel has seen. The overseas (Euro zone) exposure impacts the company more than its Indian operations, he suggests.

Technical analysts also have a negative view on these counters based on their analysis.

“All the stocks are looking negative from a short-to-medium term perspective on the technical charts. So, the strategy should be to sell on rise, states Somil Mehta, senior technical analyst (equity), Sharekhan.

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with Puneet Wadhwa in New Delhi