Shares of Tata Motors DVR (differential voting rights) surged 1.45% on Tuesday and were priced Rs 245.60 a piece, compared with Tata Motors, which slipped 0.42% to close at Rs 317.50 post the announcement of the inclusion of Tata Motors DVR in the Nifty.
The National Stock Exchange (NSE) on Monday through its semi-annual review of indices informed that three of the existing Nifty stocks — Cairn India, Punjab National Bank and Vedanta — will be excluded from April 1 and four new securities — Eicher Motors, Aurobindo Pharma, Bharti Infratel and Tata Motors DVR – will be included. With inclusion of an additional security, Nifty 50 will have 51 securities, while the number of companies will remain 50.
“Equity shares with differential voting rights shall be eligible to be included in the indices as an additional security subject to the fulfillment of eligibility criteria”, India Index Services & Products said in its semi-annual review of indices.
The Nifty earnings will definitely increase post the inclusion of an additional scrip on the historical levels as well as on the forward earnings. In case of a DVR, the promoter holding is on the lower side compared to ordinary shares.
The actual weight given to DVR will depend on the free float and market cap of the company at the time of inclusion.
Also the difference between Tata Motors DVR and Tata Motors could slightly bridge because of the former’s inclusion in the Nifty. A lot of passive funds will be holding their shares within their portfolio because of the inclusion. Thus, the overall ownership will increase and the difference between the Tata Motors and DVR will tend to reduce, according to experts.
Tata Motors DVR will trade in addition to Tata Motors’ common shares. Companies usually issue DVR shares to prevent any hostile takeover and dilution of voting rights. Tata Motors DVR has 10% voting right as compared to an ordinary Tata Motors share.
Part of the BSE 100 index earlier, Tata Motors DVR could see higher volume and liquidity post inclusion in the Nifty. Currently, the security trades at 22% discount to Tata Motors shares.
Data compiled by Bloomberg show that the 3-month average trading volume of Tata Motors DVR is 26.86 lakh shares while that of Tata Motors is 1 crore. Post the announcement, Tata Motors DVR on Tuesday showed an average trading volume of 43.94 lakh shares.
Post its inclusion in the Nifty, the effective weight of Tata Motors in the benchmark is likely to move up to 2.9% from 2.5% at present. Shares of Eicher Motors and Bharti Infratel were up 0.10% and 0.57%, respectively, while Bharti Infratel was down 0.61% on Tuesday.