Tata Motors' DVR shares seen in demand

The significant discount in differential voting rights (DVR) shares of Tata Motors to the company’s ordinary shares has been talked about for a while now. But few have taken interest in this discrepancy, if stock price movements are to go by.

Early January, Tata Motors’ DVR shares traded at a 40% discount to the ordinary shares. On Tuesday, Tata Motors’ DVR shares ended at a 36% discount to the stock. However, with some astute names on Dalal Street showing interest in this story, brokers are expecting this equation to change. Grapevine has it that Old Fox recently bought a chunk of the company’s DVR shares, which rose 3.4% to Rs 491.45 on Tuesday. The Tata Motors stock ended at Rs 774.65, down 1%.

There is speculation that there is significant creation of short positions in Tata Motors’ ordinary shares. According to a broker, investors are betting on a reduction in the gap between the two securities, because globally, the DVR share usually trades at a 10% discount to the ordinary share.

Also, traders have more incentive to hold Tata Motors’ DVR shares, as holders are entitled to an additional 5% dividend than ordinary shares, though they have limited voting rights of one for every 10 shares, the broker said.