Tata Motors Shares Cruise Higher: Zoom 9% in Two Days; Here's Why

Shares of Tata Motors raced ahead on Thursday, building on the gains of Wednesday. The auto stock rose as much as 3.6% on the National Stock Exchange by 12:25 pm today. With this rally, the stock took a fast lane, surging nearly 9% since Tuesday close.

The stock is the top gainer in the Nifty 50 index today and has bounced back almost 30% from its previous month-low. The stock is trading over 31% higher than its 52-week low level, whereas it is over 40% down from its 52-week high level.

Investors are betting on the likelihood of a trade deal between the US and the UK. Although there has not been any official statement confirming this, market participants expect that the "big and respected country" mentioned in the US President Donald Trump's post is the UK.

Trump has announced that he plans to discuss "a major trade deal with representatives of a big and respected country". If this is a US-UK deal and if it fructifies it will be beneficial for Tata Motors-owned Jaguar Land Rover as nearly one-fifth of its revenue comes from the US market. The company had paused shipments of its vehicles in April owing to the US imposing 25% tariffs on all auto imports.

The India-UK Free Trade Agreement that was recently signed could also have boosted investor sentiments. Under the agreement, Indian automotive tariffs will be cut to 10% from over 100% under a quota. This will have a significant impact on premium auto imports, though both the countries are yet to announce these quotas. This could be beneficial for companies like Tata Motors, as this could result in a boost to Jaguar Land Rover's sales in the country.

Also, the Tata group company recently received shareholders' approval for the demerger of its commercial vehicle business. Tata Motors is set to demerge in two separate listed entities – one will house the commercial vehicles business and the other will have passenger vehicle business.

The demerged commercial vehicle business, or TML Commercial Vehicles will be renamed Tata Motors and the erstwhile Tata Motors will be amalgamated with the passenger vehicle business and be renamed Tata Motors Passenger Vehicles. Both the resulting entities will have identical shareholding, including common promoters. The erstwhile Tata Motors is offering one share in the demerged commercial vehicle business for every share held in it.

This amalgamation will empower the respective businesses to pursue their respective strategies and deliver higher growth with greater agility while reinforcing accountability, the company had said. The distinctive profile and established business model of the commercial vehicles business and passenger vehicles business makes it suitable to be housed in separately listed entities, Tata Motors said.