Lessons from the Tata Group Showdown - The 5 Minute WrapUp by Equitymaster
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Lessons from the Tata Group Showdown

Oct 26, 2016
In this issue:
» India continues to attract easy money
» India marginally better in ease of doing business
» Market update
» ...and more!
00:00
Madhu Gupta, Research analyst

The fiasco at the Tata Group has snowballed into a media circus.

Everyone is busy trying to unearth the real reasons for the fallout.

In a 2013 corporate trust poll conducted by Equitymater, the Tata Group won hands down in the areas of ethics and governance. But today there is uncertainty.

Does that mean investors should steer clear of Tata Group stocks? First take a look at some of the best and worst performing stocks during Cyrus Mistry's tenure. It's a rather mixed bag.


Now, the fears that the decisions of the chairman could affect the long-term prospects of each business in the group are unfounded. Historically, each Tata company is an autonomous entity run by its own professional management. A change in the group management is not likely to have a huge impact on the performance of the constituent companies.

So rather than getting bogged down by nitty-gritties of the fallout, it is wiser to have a closer look at the fundamentals and growth prospects of each Tata company.

ValuePro, which recommends stocks from a five to ten year perspective, follows this strategy rigorously. In fact, the team uses a very fine-toothed comb to unearth companies with moats that will sustain for at least five to ten years.

Among more than 100 Tata Group companies operating in a diverse range of industries and geographies, ValuePro has recommended only a handful. The few that have passed the team's stringent parameters enjoy a strong and durable moat in the form of brand presence or pricing power.

During the tenures of both Mr Ratan Tata's and Mr Cyrus Mistry's, not many Tata Group stocks have made the cut. In fact, we may never recommend some of these stocks to our subscribers - irrespective of the Chairperson.

The common thread running through the Tata stocks we like is their ability to generate a lot of capital. And the fact that it is either ploughed back into the business or paid out to the shareholders. Irrespective of the economic or business cycles, these companies have been delivering strong returns.

The Tata Group showdown should be a lesson for long-term investors. And the lesson is to critically analyse the quality of a stock's long-term business potential. Not to invest in a name alone.

Do you think the Tata Group will continue to rank on top in terms of corporate governance? Let us know your comments and share your views in the Equitymaster Club or post it on our Facebook page.

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02:45 Chart of the day

Quantitative Easing or central banks' money printing in the developed nations, has resulted in the supply of easy money across the world. The increase in supply is chasing high yields. This makes a case for flow of this money into the emerging economies, where yields are high.

According to Institute of International Finance, emerging economies received portfolio equity inflows of US$ 61.7 billion (till September 2016) compared to merely US$ 18.9 billion in 2015. Except South Africa almost all the major emerging economies received inflows, with India among the top recipients.

India is relatively better placed in the emerging nations. Interestingly, if we add up all foreign fund flows since 2007 till August 2016, India was the top recipient with $120 billion in Asia ex-Japan, with no peer coming even remotely close. Being the fastest growing economy in the world, with some structural reforms under the Modi government bodes well for India.

India a Destination for Easy Money


03:51

India has moved up just one rank up on the World Bank's Ease of Doing Business ranking. As per World Bank's annual report, India is ranked 130 out of 190 countries in ease of doing business for 2017. The improvement is actually the reversal of earlier downgrade made by the World Bank in 2016.

However, India has made substantial improvements in some areas like electricity supply, but the slippage in other areas like payment of taxes had restricted the further improvement in the rating. In its report World Bank has recognized the concerted efforts made by India.

India targets to break into the top 50 and has made various efforts to improve on the areas where country is doing poor. For example, on the parameter of getting electricity, India has improved to 26th spot from 70th spot last year.

04:45

In the meanwhile, after opening the day in the red, the Indian stock markets further slipped in the red. Sectoral indices are trading on a mixed note with stocks from the banking sector and the FMCG sector witnessing maximum selling pressure. Telecom stocks are trading in the green. At the time of writing the BSE-Sensex was trading lower by about 228 points (down 0.8%), while the NSE Nifty was trading lower by 57 points (down 0.7%).

04:56

"Our favorite holding period is forever."- Warren Buffett

This edition of The 5 Minute WrapUp is authored by Madhu Gupta (Research Analyst) and Kunal Thanvi (Research Analyst).

Today's Premium Edition.

Tata ROEs under Cyrus Mistry

A look at the fundamental performance of Tata Group companies under Mr Mistry's Chairmanship.
Read On...Get Access

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2 Responses to "Lessons from the Tata Group Showdown"

SRINIVASAN CHANDRASEKHARAN, BAHRAIN

Nov 6, 2016

Very well said by Madhu Gupta - "The fears that the decisions of the chairman could affect the long-term prospects of each business in the group are unfounded. Historically, each Tata company is an autonomous entity run by its own professional management. A change in the group management is not likely to have a huge impact on the performance of the constituent companies".

The present move though just gave a minor jolt, in the long term Tata Group will continue to rank on top in terms of corporate governance.

Like 

shyamal sinha

Oct 28, 2016

Tata group will continueto enjoy confidence of general investors.

Like 
  
Equitymaster requests your view! Post a comment on "Lessons from the Tata Group Showdown". Click here!
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