I have been pointing out for last one month about
Tata Motors DVR. It’s been outperforming almost on a daily basis. In fact, just
take a look at these stunning numbers
This year, the Tata Motors DVR is up 55% while the
stock is up a relatively sedate 20%. Even this month, the DVR has rallied
nearly 18% vs 8% for the normal stock. Now keep in mind, both these stocks are
available in derivatives and hence any pair trade would give you much more
outperformance than this 55%:20% due to the leverage factor.
And
what’s the result of this outperformance? Well, when the DVR was launched, it
had a discount of 10%. Over the period, the discount kept widening and in fact
reached 55-60%. Now with this outperformance of DVR, the discount is down to
32%. Can this trim further and what is the reason that DVR has caught market’s
fancy?
The
trigger perhaps was a bit global in nature. Google’s DVR trades at par with the
stock and others like Viacom trade at maximum 5-10% discount. But more importantly,
when Google announced a share split and that resulted in Google DVR, the
S&P had to do something unprecedented. It had to include both Google (GOOG)
and Google DVR (GOOGL) on the benchmark index to fully capture Google’s market
cap. So S&P 500 now has 501 stocks but is still called S&P 500.
Now can
the same logic be applied in India
But
let me add a word of caution here: While logic says the discount should narrow
further, you must not lose sight of the fact that its vulnerable to any market
correction because of its outperformance. But all things being equal, it won’t
surprise me if the discount trims further to around 15-20%
Thanks.
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