Over the past few weeks, the Tata-Mistry row has dominated the front-page headlines of business dailies. As the boardroom battle intensifies, Tata Group stocks are bearing the brunt. Stocks such as Rallis India, Tata Chemicals, Tata Elxsi, Indian Hotels Company, TRF, and Voltas have declined by 15-20% over the past few weeks.
 

Performance of Tata Group stocks

Company Name	24 Oct 16 to 18 Nov 16
Trent	-8.1%
Tata Communications	-9.1%
Tata Steel	-9.7%
Tata Consultancy Services	-12.4%
Tata Investment Corporation	-13.1%
Tata Motors	-16.0%
Tata Coffee	-16.1%
Tata Power Company	-16.2%
Tata Sponge Iron	-16.3%
Titan Company	-19.1%
Tata Chemicals	-19.5%
Tata Elxsi	-19.8%
Rallis India	-20.5%
Tata Global Beverages	-21.4%
Voltas	-25.7%
TRF	-29.8%
The Indian Hotels Company	-29.9%

(Source: ACE MF, PersonalFN Research)

As the value of the stocks continues to decline, investors are getting restless. Mutual funds hold nearly Rs 20,000 crore worth of Tata Group stocks. This is a significant amount and thus, the decline in the valuations of the group companies is affecting their schemes' performance. More than half of equity mutual fund schemes have an exposure above 5% to Tata Group stocks.
 

Equity MF Schemes Exposure To Tata Group Stocks

Weightage to Tata Stocks	No. of Schemes
0-5%	160
5%-10%	150
10%-15%	51
15%-20%	6
20%-25%	2

(Source: ACE MF, PersonalFN Research)

In such a scenario, it will be interesting to see how fund managers place their bets – whether they increase or trim exposure to Tata companies.

First, we look at the how Tata Sons and Mistry exchanged blows over the past few weeks...

On October 24, the board of Tata Sons unceremoniously ousted Cyrus Mistry as the Chairman on grounds of "non-performance". Mistry protested. In a 5-page letter to the directors of Tata Sons, Mistry highlighted several governance issues in the group companies. A fortnight later, Tata Sons issued a 9-page press release attacking Mistry.

On November 10, the board of Tata Consultancy Services replaced Mistry as chairman. Four days later, Tata Global Beverages did exactly the same thing. Mistry disputed the process calling it illegal.

And now the question is: Will the other companies follow suit?

Mistry continues to remain as chairman on the boards of Tata Motors, Tata Steel, Tata Chemicals, and Indian Hotels Company. The independent directors of Tata Chemicals and Indian Hotels Company have expressed strong confidence in Mistry as chairman.

However, Tata Sons has proposed extra-ordinary general meetings (EGMs) of shareholders at some Tata group companies, seeking to oust Mistry from their boards as well.

As the battle continues, investors in India and abroad are watching closely. The focus will now be on the EGMs, as Tata Sons will seek shareholders support to vote out Mistry.

How are mutual funds houses dealing with this?

To safeguard investors' interests, mutual funds have formed a committee to take a call on the resolutions moved at the EGMs of the Tata group companies.

According to media reports, the 19-member committee includes chief investment officers of various fund houses. This is probably the first time in history that fund houses will be taking a consolidated view of the management decisions.

Most fund houses state that they are confident of the long-term prospects of Tata stocks, but want assurance that the short-term volatility would be contained. Along with foreign institutional investors, fund managers back home are hoping for an early resolution between the warring camps.
 

Mutual Fund activity in equity of Tata Group companies in October 2016

Company Name	Total Market Value of Holding as on 31 Oct 2016 (Rs Cr.)	No. of Shares Bought / Sold	Value of Shares Bought / Sold (Rs Cr.)
Tata Motors Ltd.	5,472	5,550,314	297
Tata Steel Ltd.	2,901	3,104,757	121
Tata Global Beverages Ltd.	117	2,891,761	40
Titan Company Ltd.	775	592,345	23
Tata Coffee Ltd.	108	785,000	10
Trent Ltd.	603	132,091	3
Tata Elxsi Ltd.	37	7,498	1
Tata Power Company Ltd.	405	106,943	1
Voltas Ltd.	1,796	-10,555	-0.4
TRF Ltd.	14	-107,145	-3
Tata Sponge Iron Ltd.	6	-72,543	-4
Tata Investment Corporation Ltd.	42	-73,532	-4
Rallis India Ltd.	388	-658,826	-15
The Indian Hotels Company Ltd.	1,256	-1,794,938	-22
Tata Chemicals Ltd.	1,503	-1,521,331	-81
Tata Communications Ltd.	570	-2,436,242	-146
Tata Consultancy Services Ltd.	3,714	-993,293	-240

(Source: ACE MF, PersonalFN Research)

Fund managers would have bought or sold shares during the month. Much of the buying and selling in October may not have been a reaction to the Tata-Mistry spat, which came to light at the tail-end of the month. Nonetheless, it is interesting to note that fund houses increased their stake in Tata Motors, Tata Steel, and Tata Global Beverages, while they sold Tata Consultancy Services, Tata Communications, and Tata Chemicals.
 

Who bought and sold the most in Tata Group companies this October?

MF Name	Total Market Value of Holding as on 31 Oct 2016 (Rs Cr.)	Value Bought/Sold - Oct 2016 (Rs Cr.)
Top Buyers
ICICI Prudential MF	1,744.63	237.02
Birla Sun Life MF	1,877.22	151.05
Mirae Asset MF	544.70	91.83
DSP BlackRock MF	424.55	42.60
HDFC MF	3,880.72	39.27
Top Sellers
Reliance Nippon MF	2,707.97	-287.33
Axis MF	517.62	-124.88
Sundaram MF	328.87	-47.66
Principal PNB MF	89.82	-30.25
Franklin Templeton MF	1,508.31	-29.89

(Source: ACE MF, PersonalFN Research)

ICICI Prudential MF, Birla Sun Life MF, and Mirae Asset MF were among the top buyers of Tata Group stocks, buying Rs 479 crore worth of shares. On the other hand, Reliance Nippon MF, Axis MF, and Sundaram MF were the top sellers with a total value of Rs 459 crore worth of shares dumped in October.

Mutual fund holdings are available only at the end of each month. As the feud continues through November, it will be interesting to see how fund houses manage their exposure to Tata stocks going forward.

As a mutual fund investor, should you be worried?

Schemes with a high exposure to Tata stocks would show bearing. However, don't panic. This can be a short-term phenomenon. Given that fund houses have proactively formed a committee to take a call on the resolutions proposed by the board, it is a positive sign for you investors. Remember, in times of fear and confusion, even good stocks come under selling pressure; but that is mostly for the short-term.

Therefore, you need not reshuffle your portfolio even though some of the schemes in your portfolio may have a higher exposure to Tata group companies. As long as you invest in consistently performing mutual fund schemes that are from fund houses following sound investment systems and risk management processes, there is no need to worry. Such schemes can generate adequate returns for you. To save yourself the hard work and mitigate volatility, Systematic Investment Plans (SIPs) can be the answer.

If you want unbiased and independent guidance to select winning mutual fund schemes for your portfolio, subscribe to PersonalFN's unbiased mutual fund research services.

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