Stocks related to Tata and Sons saw an intraday fall on Friday, a day after a fatal crash of an Air India Dreamliner plane. Although the airline is not publicly listed, the incident led to a bout of risk aversion, as investors reduced their exposure to various listed Tata entities.
Cohesively, some of the Tata Group stocks shed as much as 2%, with Tata Technologies and Trent taking the lead. However, the correction was not motivated at its core but displayed the vulnerable mood that usually ensues from a tragedy of such scale when it is connected, even symbolically, to a huge corporate brand.
Stocks Respond, Sentiment Directs Trade
Tata Technologies fell by more than 2.6% and Trent by nearly 2.4% on the BSE. Tata Investment Corporation too recorded a loss of over 3.5%. Tata Chemicals, Tata Power and Tata Elxsi shares ended down by 1.5-2.3%. Even very insulated counters like TCS, which are not operationally linked to aviation, experienced modest declines.
The wider market, though, was stable. Sensex ended with tiny gains, indicating that the effect was mostly contained in the Tata pack and counters related to the aviation industry.
Questions Raised, Precaution Triggered in Air India Crash.
An Air India Boeing 787 that was going to London was involved in the crash that happened soon after the takeoff in Ahmedabad. Although it is still being investigated and no causes have been officially verified, the severity of the accident, which took the lives of more than 240 people, was sufficient to induce some concern in investors.
Since coming back under the aegis of Tata and Sons, Air India has been undergoing an enormous restructuring and image makeover. The crash occurred at a delicate period for the brand, and the fears regarding its image of operations seem to have leaked into the market perception, although the reality of business effects is negligible.
Expert Opinion:
“Panic in the Short-Term, Disconnection in the Long-Term”
Throughout the financial world, it is believed that this market behaviour is mainly caused by psychological spillover. No material or structural exposure can justify such falls in companies such as Tata Chemicals or Trent. But these events can, in the short run, cause a flight to quality and selling frenzies that have more to do with fear and greed than fundamentals.
This is being seen by many as a short-term response, which could dissipate when regulatory certainty and technical conclusions are published.The conglomeration of the holding of Tata and Sons is also a natural guard against concentration of exposure.
It is also appreciated that the insurance mechanisms and subsidiary-level segregation will most likely take care of the fact that the financial liability, in case of any, of the tragedy will not infect other companies within the group.
What Investors Should Do Next?
Avoidance of aviation-related names is likely to persist in the next few trading sessions, but some buying may ease as the scenario becomes more apparent. Wider volatility in Tata Group counters could well continue in the near term, particularly given the overhang of sentiment, though the view of most analysts is that long-term investors could well use any such correction to buy quality stocks within the group.
Although the Air India crash is inarguably a human tragedy, its immediate financial ramifications on the overall portfolio of Tata and Sons are minimal.
The sentiment-driven decline in stocks on Friday looks more like a reflection of a structural weakness. With markets absorbing the news and waiting to gain more clarity, investors might have to isolate emotional headlines and look at the actual strength of the diversified operations of the Tata Group.
