Last Updated:
After the demerger, the market cap of Tata Motors got divided into two parts and due to this the company has reached the position of being out of the Sensex. IndiGo’s parent company InterGlobe Aviation has now become the strongest contender to be included in the index by surpassing it in value. The analysis estimates large passive outflow from Tata Motors and huge inflow into IndiGo, while there is some possibility for Grasim as well.
New Delhi. Tata Motors is currently in a very uncomfortable situation amid the booming market. Before the December review of Sensex, the company is in danger of being dropped from the index because after the demerger in October, its market cap has been divided into two parts. This change is so big that it may be difficult to maintain a place in the index and InterGlobe Aviation, the parent company of the country’s largest airline IndiGo, is ready to take its place.
This condition of Tata Motors happened because after demerger, both commercial and passenger businesses are trading at different values. While the value of the passenger vehicle business has increased, the broken structure has brought the company down in the market cap rankings required to be included in the Sensex. Indigo is benefiting from this gap whose market cap is much higher than both the Tata businesses.
Tata Motors’ market cap divided
Recent data shows that Tata Motors’ commercial vehicle business is now valued at ₹1.19 trillion, while the passenger vehicle business is trading at ₹1.37 trillion. On the other hand, InterGlobe Aviation, which operates IndiGo, is valued at ₹2.27 trillion, which makes it the strongest candidate outside the Sensex.
According to market expert Brian Freitas, if Tata Motors is removed from the index, there could be a passive outflow of about ₹ 2232 crore, whereas if Indigo is included, it will get a passive inflow of about ₹ 3157 crore.
Grasim also in the race
The situation may also be such that the index committee may choose Grasim Industries instead of Indigo because the exposure of the commodity sector in Sensex is currently less. If Grasim gets the place, it is expected to get passive inflow of about ₹ 2526 crore. However, considering the market trend and weightage requirement, Indigo’s name is currently considered to be at the forefront.
JLR under pressure
Amidst the index review, pressure has also been seen on passenger vehicle shares of Tata Motors. On Monday, the stock fell by 7.3 per cent intraday and ended the day at ₹372.7, down 4.83 per cent.
The biggest concern here is about JLR business as five weeks of production was halted due to cyber attack in September due to which the company had to pay a one-time charge of $228.5 million in the second quarter. Research firm Jefferies has warned that tax pressure in China, increasing competition and the shift towards electric vehicles could put further pressure on JLR’s margins.
