Tata Motors demerger explained: Why this Tata stock might be showing up 40% fall today

Shares of Tata Motors might be showing up to a 40 per cent in some trading apps today as the Tata Groups' automobile arm traded ex-demerger today. The auto major spun-off its commercial vehicle business from its passenger vehicle business. All the eligible shares of Tata Motors, as of the record date, will receive shares of the demerged commercial vehicle entity in 1:1 ratio.

Shares of Tata Motors opened at Rs 399 on Tuesday, signalling a xx per cent fall from its previous close at Rs 660.90 on Monday, down 39.62 per cent against the last price. The total market capitalization of the stood Rs 1.45 lakh crore mark. The indicated fall was due to the 'subtraction' of its commercial vehicle business value from the stock.

Monday, October 13, was the last to buy Tata Motors to become eligible to get the shares of Tata Motors Commercial Vehicle Tuesday marks the record date for the same. The stock is under the 'T+1' settlement cycle. The record date determines the eligibility of shareholders for the given corporate action.

The ongoing derivative contracts of Tata Motors expired on Monday itself. The new derivative contracts of the already listed entity- TMPVL-will be re-introduced on Tuesday, and will begin trading at 10 am from today. However, the demerged entity of commercial vehicles will not be immediately included in the F&O segment.

Eligible investors of Tata Motors shall get shares of TMLCV in 1:1 ratio, which upon allotment, thereafter, shall be listed on the stock exchanges- BSE and NSE. The process of obtaining listing and trading permission generally takes 45-60 days from the date of filling necessary applications with stock exchanges.

SBI Securities was expecting the existing entity Tata Motors to list in the range of Rs 285-384 post demerger. Any potential upside remains dependent on the recovery in JLR volumes and improvement in profitability as the passenger vehicle arm remains exposed to the global passenger vehicle industry, said the brokerage firm.