Why is TCS' share in listed Tata group firms declining so rapidly?

The stock market underperformance of Tata stocks, excluding TCS, long cast a shadow on the group’s overall performance. But the past year and a half have been different. The group’s stocks have staged an astounding rally, helped by several factors, including India’s bull market.
 
Because of this, Tata Consultancy Services’ contribution to the group’s market cap declined to a decadal low of 58.2% as of October 14. The IT exporter had accounted for 67% of the group market cap in December 2020 and a record 75% at the end of March 2020.
 
On October 21st, rating agency S&P upgraded the global ratings for Tata Steel, Tata Motors and its subsidiary Jaguar Land Rover with a stable outlook. It also removed the companies from Credit Watch. S&P’s action follows a reassessment of influence and potential for extraordinary financial support from holding company Tata Sons to group entities. 
 
Listed Tata companies at present have a combined market cap of Rs 23 trillion, compared with Rs 9.19 trillion in March 2020. The entire group’s market cap is up 49% year-to-date (YTD).
 
Group stocks like Tata Elxsi, Tata Power, Tata Motors, Tata Chemicals and Tata Steel have notched gains in high triple digits since their lows of March and April 2020.
 
The best-performer is design and technology services firm Tata Elxsi, with a 1000% gain. Tata Power has rallied 740%, whereas Tata Motors and Tata Chemicals have gained 680% and 390%, respectively. Tata Communications, too, has been among top performers, rising 565% since March last year. Riding a commodity rally, Tata Steel reduced its debt to the tune of Rs 28,000 crore in FY21 to Rs 88,500 crore. Its stock has gained 450% since its low 1.5 years ago. Titan Company’s market value crossed the Rs 2-trillion milestone early this month.
 
Nearly five years after N Chandrasekaran took charge as the chairman of Tata Sons, a number of reforms initiated by him finally seem to be bearing fruit.
 
He focused on simplification of the group structure and driving synergies between its companies.
 
For instance, Tata Motors, Tata Power and Tata Chemicals have come together to build an Electric Vehicle ecosystem in India. Tata Chemicals has announced plans to manufacture Lithium-ion batteries while Tata Power is setting up a nationwide network of EV charging stations. Tata Motors has emerged as the top seller of EV cars in the country. And recently, it sold a $1-billion stake in its EV business to TPG Group at an overall valuation of around $9 billion.
 
In 2019, the group consolidated its food and beverage businesses under the umbrella of Tata Consumer Products, transforming the latter into an FMCG giant and putting it on a new growth trajectory.
 
On the digital front, the group is getting ready to launch its super app Tata Neu.
 
Even as the Tata Group overcomes legacy issues and becomes future ready, its dependence on TCS for profitability may not come down much more anytime soon. In the last five years, dividend and share buybacks by TCS have accounted for nearly 94% of all Tata Sons earnings. TCS is likely to remain the biggest source of dividend for Tata Sons for a considerable duration.
 
But for now, it seems the Tata group is gearing itself up to fire on multiple cylinders and not ride on the success of TCS alone.