Why is Tata Motors suddenly gaining momentum?
Finance
The 'Star of the Week' award goes to Tata because they made headlines all through - from Air India’s homecoming to the rise of Tata Motors’ share price.
Today we look at the week in retrospect and the share that topped the charts.
On Thursday, shares of Tata Motors gained over 10% to hit a 3-year high!
About the company
As the name suggests, it is a car manufacturing company. Simple, isn’t it?
Well, not so simple.
It offers a wide and diverse portfolio of cars - SUVs, trucks, buses, and defence vehicles to the world. It has operations in India, the UK, South Korea, South Africa, China, Brazil, Austria, and Slovakia through a strong global network of subsidiaries, associate companies, and Joint Ventures (JVs), including Jaguar Land Rover in the UK and Tata Daewoo from South Korea.
That is an impressive international footprint!
Revenue by geography
Despite being an Indian firm, as of FY20, the major contribution to its revenue comes from North America.
Fundamental analysis
Bitter truth be told - the financials paint a grim picture. A negative Return on Equity (ROE), high debt and a negative EBIT tell a tale of a financially weak company. So, the big question is what made its price rise on Thursday?
ROE: Return on Equity = Net Income/Shareholders’ Equity
EPS: Earnings per Share
EPS = Net Profit / No. of common shares
Why the surge?
A meeting!
Tata Sons Chairman and Tamil Nadu’s CM met, and the auto giant has been invited to take over Ford’s plant in Chennai. Naturally, speculations abound.
This will bolster Tata's focus on eco-friendly vehicles, so this seems only reasonable.
Electric is taking charge
Electric is the new rage. Electric is the way ahead.
Tata has been aggressively foraying in the EV segment. They are the current market leaders in the EV segment in India. Nexon SUV EV and Tigor EV have been a success and have sold more than 10,000 units so far.
Additionally, TPG (US-based private equity company) and Tata Group are in the final stages of talks of USD 1 billion investment in their EV segment. Tata Motors has also announced plans for launching 10 new electric vehicles in its domestic product portfolio by 2025.
Author’s opinion: To buy or to ditch?
Recognise potential before it blossoms is all I have to say. Negative financials can turn positive if the company is thinking and acting right.
Until next time, happy investing!
India-China standoff
Defence
It’s been a little over 18 months since the Galwan Valley India-China standoff took place on May 5, 2020, and now there is fresh ground for concern with India’s aggressive neighbour.
The 13th round of top-level military talks between Lt. General PGK Menon, commander of the Leh-based XIV Corps, and Major General Liu Lin, commander of the South Xinjiang Military District, ended in a bitter deadlock, with both the parties blaming each other for the military standoff in Eastern Ladakh.
Troops at hot springs
So far, troops have disengaged on both banks of Pangong Tso and Gogra Post. The major friction point is called Patrol Point 15 or PP15 in the Hot Springs-Gogra-Kongka La area. In August 2021, the Indian troops had strategically occupied Kailash Range heights and have now agreed to vacate it for disengagement around Pangong Tso.
Kongka La remains the strategic point for China
The refusal of China to pull back its troops from the Hot Springs, which is traditionally considered on the Indian side of the border, is a major obstacle.
Hot Springs lies in the Chang Chenmo river valley, close to Kongka La, a pass that marks the Line of Actual Control (LAC). Kongka La is a strategic point for China, as two restive provinces, the Xinjiang in North and Tibet in South, are connected by a highway that passes near Kongka La.
Both sides at LAC for another winter
With no breakthrough being achieved in the talks, it will be a 2nd successive year that troops from both sides will be posted at the LAC during the harsh winter of Ladakh.
Each side has around 50,000 troops stationed, who will battle temperatures of -30 degrees and the various issues that accompany high altitudes. In a separate incident before the talks, the Chinese PLA had begun intrusions in Arunachal Pradesh and Uttarakhand, which were kept in check by the army without any major escalations.
Possibility of war?
While both Foreign Ministries have issued single statements which are strongly worded, chances of reaching an acceptable compromise and solution look bleak. Given the slow economic recovery and after-effects of COVID, both countries would not want to come out looking weaker in an international escalation.
While the prospect of a war is a remote possibility, both countries need to cooperate to reach a quicker resolution for the overall stability of the region.
Cannot be caught off-guard
For India in particular, such escalations are a reminder to be prepared for a 2-front battle. For a long time, India has majorly focussed on dealing with issues on the western border.
However, with China making aggressive and expansive manoeuvres, and the regional instability of Afghanistan at the Western Border, the Indian army, and the government will have to be proactive in modernization and mobilization, and cannot be caught off-guard. It also will need to establish stronger and clearer policy decisions regarding the Eastern Front going ahead.
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