Tata Motors differential voting shares stuck in first gear

The Indian stock market’s first experiment with the differential voting shares has made a poor start. Trading volumes of Tata Motors Differential Voting Shares (DVS), a class of shares that carry one-tenth voting rights, have dwindled and the share price is now well below the November 5 listing price.

On Friday, for instance, only two shares were traded on the Bombay Stock Exchange (BSE) and 46 on the NSE. Cumulatively, in the last 10 trading sessions, since listing around 13,000 shares were traded, of which 11,000 shares on listing day account for the bulk. Against this, the average daily trading volume of normal voting shares was more than 5 50,000 on the BSE and 1,400,000 on the NSE in the same period.

This thin trading and low share price may be partly driven by the lacklustre stock market but also because Tata Motors DVS devolved on the promoters and underwriters. In effect, just three entities own the differential shares — Tata Motors, JM Financial and IFCI.

Since the promoters and IFCI will not sell at loss, it is unlikely that Tata Motors DVS will see any meaningful trading on the stock exchange. “The trading pattern clearly reflects that the actual price discovery has not taken place,” said a BSE official.

The rights issue with India’s first differential voting shares was held in July 2008 to raise around Rs 4,150 crore.

The differential voting shares, however, are trading at a premium to the voting shares. They were priced at Rs 305 per share, including a premium of Rs 295 per share against Rs 340 for the voting shares. On the BSE, the current price of differential voting shares is Rs 146 against Rs 133 for the voting shares.

The performance so far has raised some basic questions on regulating this new class of instruments and maintaining the minimum floating stock.

A senior NSE official said the Tata Motors DVS technically meets all legal requirements. “At the same time, it clearly reflects that there is hardly any floating stock in the market,” he said.

“It is not clear whether the investor has rejected the new instrument or the company has failed in terms of its performance or whether the failure is due to the global turmoil,” he added.