Tata Motors demerger: Will the stock exit Sensex and Nifty50? Check out what Nuvama says

Tata Motors share price: Tata Motors' mega announcement of demerging its PV and CV businesses into two separate listed entities has led analysts to decode its impact on all the stakeholders. Reacting to the announcement, which was made on Monday (March 4), post-market hours, the stock hit an all-time high of Rs 1,065.6 apiece on BSE on Tuesday.

Conducting a deeper analysis of Tata Motors' demerger impact on equity indices, Nuvama Alternative & Quantitative Research said in a report that Tata Motors is brilliantly utilising its current momentum to embark on the right restructuring path.

Also Read: Demerger Effect! Tata Motors hits fresh high; stock jumps 5% to top Rs 1,000 level

The report, while touching on the demerger's impact on domestic indices, compared it with Jio's recent demerger from Reliance Industries, where Jio got listed separately and eventually got excluded from the domestic indices.

It said that after getting separated into two different entities, its CV business becoming a standalone entity, it will exit Nifty 50 and Sensex.

"Tata Motors is currently a member of all passive indices. However, once the demerger is complete, with the smaller entity (CV business) becoming a standalone entity, it will exit Nifty 50 and Sensex," the report read. 

Also read: Tata Motors demerger: UBS doesn't see any material value; maintains 'Sell' 

Nuvama is looking forward to a wait of around 15 months or so for the demerger to materialise. 

Additionally, as per the report, MSCI and FTSE indices will evaluate the smaller entity's market capitalisation around listing to determine its eligibility. Assuming the commercial vehicle (CV) business gets around 25 per cent of the total market cap, Nuvama opines it will maintain its position in the passive indices. 

Also read: Tata Motors demerger: Analysts' take and what shareholders need to know

It should be noted that the key factors to determine the eligibility will be the market capitalisation (total and free float) of Tata Motors shares and the global cutoff levels. 

From a fundamental perspective, Nuvama sees demerger as a positive move as it follows the logical subsidiary of PV and EV businesses initiated in 2022.

"Limited synergies exist between CV and PV, while potential synergies abound across PV, EV, and JLR, particularly in EVs, autonomous vehicles, and vehicle software—a move the demerger will facilitate," the report read.

In recent years, CV, PV (PV+EV), and JLR have operated independently under their respective CEOs. 

On Monday, March 4, 2024, Tata Motors' board approved the proposal to demerge the automaker's businesses into two separate listed companies. One entity will be the commercial vehicles business and its related investments, and another will be the passenger vehicles businesses, including PV, EV, JLR, and their related investments. 

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