Tata Group’s flagship cos languish in 2022; midcaps outdo by wide margin

Several stocks of Tata Group companies gave multibagger returns in 2021, but failed to continue the good show in 2022. Of the 24 listed companies of the group, about 15 of them have given negative returns this year.

The worst hit stocks include Tata Power Company, Nelco, Tata Consultancy Services, Tata Metaliks, Tata Steel Long Products, Tata Communications, Rallis India, Tata Motors, Voltas, Automotive Stampings and Assemblies, and Tata Teleservices (Maharashtra). These stocks have fallen by 11-60% year-to-date.

The sell-off in technology stocks globally amid rising inflation and interest rates and concerns of a slowdown in developed economies – the US and Europe – weighed on shares of TCS. The stock fell more than 13%, ending its five-year winning streak.

Most analysts are underweight on the technology sector given the global headwinds, but for them Infosys is a preferred pick than TCS.

In the backdrop of an expected slowdown in 2023, brokerage Jefferies finds the sector's valuation rich and offer little comfort from an entry multiple perspective.

“We remain on the sidelines, with Infosys our only buy recommendation given its superior growth profile,” it said in a report.

After being the best performer within the automobile pack in 2021 and giving multibagger returns, Tata Motors was knocked down by Dalal Street investors as the outlook for its arm Jaguar Land Rover was clouded by the global headwinds even as the domestic business

turned around significantly.

JLR, which constitutes more than 90% of Tata Motors’ consolidated revenue, faces demand headwinds across all major markets – the US, Europe and China. A recovery anytime soon remains uncertain given the 2 developed economies are on the brink of a recession, while China is grappling with the unabating COVID cases.

Most analysts expect Tata Motors to underperform the market in the near term until clarity emerges on the growth outlook for JLR.

“We need to see how the global recession pans out. Global portfolio remains a sign of worry for Tata Motors stock performance,” said Kranthi Bathini, an equity strategist at WealthMills Securities.

“The stock is in a consolidation phase. It should underperform the market at least in the first half of 2023,” Bathini said.

After giving strong double-digit returns for 2 consecutive years, Tata Steel gave double-digit negative returns in 2022, as sharp rise in input and fuel costs ate into the profitability and inflation hurt demand in international markets.

While the recent correction in global commodity prices is seen easing the pressure on profitability for the steelmaker, analysts do not expect the stock to see any significant upmove in the near term.



THE OUTLIERS

While the flagship companies of the Tata Group languished, some of the midcap and smallcap names not only bucked the trend but have also seen significant investor interest this year.


Indian Hotels and Oriental Hotels have given strong double-digit returns for two consecutive years in a row. A strong rebound in both leisure and business travels after the opening up of

the economy bolstered growth for the hotels business of the group.

Companies saw revenue and margins reaching pre-pandemic levels. In the last one year, shares of Indian Hotels have risen 78%, outperforming Nifty 50 which has risen about 6%.

Of the 14 analysts tracking Indian Hotels, for 8 of them, the stock is a “strong buy”.

The other emerging hero from the Tata Group stable is Trent. It is the only stock of the group which has given positive returns for 9 consecutive years and in double-digits for 4 years in a row.

“The consumer story is emerging in India and Trent is seeing a lot of traction in its Zudio stores which are targeting the middle class and upper class. So, I would say one should accumulate this stock as it’s a proxy for consumption,” Bathini said.

(With data inputs from Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)