Tata Motors shareholders may have received a shock this morning as the stock plummeted almost 40 per cent within the first hour of trading, dropping from its 52-week high of Rs 940 to just around Rs 376. For anyone holding Tata Motors in their portfolio, this sharp decline might appear alarming and suggest severe losses on the surface, yet the real story behind this adjustment offers reassurance for both short-term and long-term investors.
The massive price drop was not the result of market jitters or any negative business developments surrounding Tata Motors.
Instead, it’s a technical adjustment arising from the company’s long-anticipated demerger, which went into effect on October 14.
This process officially separates Tata Motors’ commercial vehicle business from its main entity, marking the record date when shareholders become eligible for shares in a newly created unit—TML Commercial Vehicles Limited (TMLCV).
The restructuring means Tata Motors is now split into two independent businesses: Tata Motors Passenger Vehicles Limited (TMPVL), comprising all passenger vehicles, electric vehicles, and the luxury brand Jaguar Land Rover, and TMLCV, the entity responsible for commercial vehicles. With the carve-out of the commercial vehicle segment, the Tata Motors share price now reflects only the value of its passenger vehicle business. In other words, what looks like a steep fall in stock price is simply the market reacting to the fact that the company is now valued solely on its passenger vehicle division, excluding the commercial arm.
Split, not slump
For investors, this can initially appear as a drastic loss in their portfolio value. However, the reality is much less dramatic. Each investor continues to hold their interest in the overall Tata Motors business; it’s just split into two separate companies.
For every share of Tata Motors previously owned, shareholders will receive one share of TMLCV in addition. The overall investment value is not erased, but instead redistributed. The full valuation will only become clear once both entities are actively traded on the market.
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In November, TMLCV shares are expected to be listed on both the BSE and NSE, at which point shareholders will be able to assess the combined value of their holdings across both businesses.
Adjustments like these are standard in the market when a company goes through a demerger, as the value gets split between the parent and the newly listed entity. Past market instances underline that the apparent reduction is temporary and does not reflect a fundamental loss in investment.
Investors who see a sudden drop in portfolio value after a Tata Motors demerger can be assured that the adjustment is structural rather than sentimental. The split aims to unlock better value for both divisions—passenger vehicles and commercial vehicles—offering increased transparency and potential for future growth as independent entities, rather than signalling a loss of wealth for shareholders.
