Should you exit TATA stocks with Cyrus Mistry…???

Raja C V

Should you exit TATA stocks with Cyrus Mistry…???

The exit of Cyrus Mistry from TATA group was not a crisis situation and wouldn’t change the fundamentals of companies. The sudden removal of Mistry took the market by surprise and in the near-term, some volatility in Tata Group stocks was seen. It raises questions on the governance front too. However, all the companies are independently managed and so their operations won’t get impacted. While work in progress at most firms would continue, some long-term strategies undertaken at group companies may now be put on hold. For instance

• Tata Motors had planned two new launches per year to turn around the domestic passenger car business. The launches so far, including Tata Zest, Bolt and Tiago have had mixed success.
• At Tata Steel, the European operations still remain an overhang and the dispute between Tata and Docomo over the telecom venture has gone into arbitration.

Cyrus Mistry’s tenure:

• Tata Consultancy Services and Tata Motors have gained 92% and 81% respectively since Mistry took charge on December 28, 2012.
• Tata Communications has surged 183%.
• However, Tata Power declined 23%, Tata Global Beverages fell 4% and Tata Steel was also down 0.50% over the same period.
• The combined market valuation of all listed companies of Tata Group almost doubled during the four-year tenure of Mistry.
• The market capitalization of the listed companies of Tata Group stands at around $125 billion now or about Rs 8.5 lakh crore, up from Rs 4.6 lakh crore in December 2012.

So should you use this opportunity to exit Tata Group stocks or are they a good contrarian bet? Can these stocks underperform given the uncertainty within the conglomerate?

As Tata Group companies are run by “independent professional management” who will continue to do the best for their respective companies, we should further look at the individual stock behaviors:

TATA CHEMICALS

The daily chart of Tata Chemicals attached above shows that stock has been in strong uptrend and trading near fresh highs which clearly indicates strength in price. Post making the fresh highs of 585 stock witnessed corrections in price might be due to sudden exit Cyrus Mistry from TATA. The decline has led price dropped to the confluence of supports. Price has the support of long term up sloping trend line support which is drawn connecting the higher troughs. Short term 52 DEMA also collides near up sloping trendline. Volumes witnessed sharp surge near the support showing strong support for the stock. Will the support hold and continue its up move is significant to watch ahead.

TATA STEEL

 The Weekly chart of Tata Steel attached shows that the stock has been forming progressive higher highs and higher lows such formation indicates the presence of uptrend in price. Post the event stock seen declined from the 61.8% retracement level of its previous decline from 578.6 to 200.4. Correction led price to drop to Rising trendline support and its previous swing low. Near same support zone price has the support of 25 WEMA where price took support at same moving average earlier. Will price continue to follow higher highs and higher lows formation?? And hold important support is likely to watch ahead.

TATA MOTORS

The above daily chart of Tata Motor shows that price witnessed steady up move in this year after selling last year. This year for the investors and short term trader was fortunate and would make healthy returns as price moved higher from 266.5 to 586 in about six months. Price halted its upside rally towards its previous peak. Currently, the stock is trading near the 23.6% retracement levels of its previous rally from bottom to peak. At same levels stock has the support of medium term 100 DEMA suggests strong support for the price. If price breaks this support price can see fresh selling and drop towards 38.2% retracement levels and 200 DEMA which is 466-471levels.

TCS

TCS is in a long-term uptrend while in the intermediate term it is sideways in the range of 2200-2750. Price is struggling in that range for almost 2 years now. Despite many quarterly results coming out this stock is largely been unaffected. So when it breaks above or below the range only then a larger trend may emerge. Till that, one can do range trading in this stock.

TATA GLOBAL

The weekly chart attached shows that price had fallen from around 180 levels to 100. And the current rise of last few months got arrested around 78.6% retracement. The news of Cyrus Mistry has seen to impact the stock and price has fallen sharply on account of it. Using trendline from the lows we get supports around 135-136. Now we should look whether price holds the trendline or not. If price breaks that next level we get around 120.

CONCLUSION

Most of the stocks from TATA group seem to be on strong support zone, where couple seems to be struggling between ranges, Seems like the impact, for now, has been discounted on price.

Over the medium-term, however, a lot would depend on how the boardroom battle plays out. In case this goes on to become a long-drawn legal battle between Pallonji Group and Tata Sons. If Cyrus Mistry goes to Court, then all group stocks would react negative and next few months can be bad. On the other hand, if the matter is settled within the boardroom, then it would be the best thing to happen for Tata Group shareholders.

Author’s Bio:

Raja C V

Raja, who is a Master in Computer Applications as well as anMCom and CISA, administers every aspect of Chartadvise.com.He takes care of a variety of technological, financial and administrative function to keep Chartadvise.com humming at peak efficiency all the time! Having a market experience of more than 8 years in advising on Equity, Derivative and Commodity he is able to handle client’s requests with ease. Possessing a very cool head, he is the best person to have on your side when the market gets into one of its usual erratic self.