Tata Motors Demerger: Two separate companies formed, CVs to be listed, impact on indexes and stocks:

News Topical, Digital Desk : The impact of Tata Motors' demerger is now being felt in the stock market. Effective October 1, 2025, the company will split into two parts. The first is Tata Motors Passenger Vehicles Ltd (TMPV), which includes the JLR and EV businesses. The second is Tata Motors Commercial Vehicles Ltd (TMCV), which includes commercial vehicle operations such as trucks and buses. Investors are now awaiting TMCV's listing this month, which will impact indexes, funds, and stock movements.

What will be the impact on shareholders?

Under the demerger scheme, Tata Motors investors received one share of TMCV for every one share held. This means the ownership structure will remain the same. After the demerger, Tata Motors Ltd has been renamed Tata Motors Passenger Vehicles Ltd., while Tata Motors Commercial Vehicles Ltd will now officially be called Tata Motors Ltd (TML). Both companies will now be separately listed.

What will be the impact on the index? After the demerger, index providers will have to adjust their weightings and representation. According to Prashant Tapase of Mehta Equities, a dummy symbol (zero price) for TMCV will be temporarily added on listing day to ensure no change in the value of the Nifty 50, Nifty 100, and Nifty Auto Indexes. This is the same process followed for the demerger of Jio Financial Services from Reliance (2023). Tapase estimates that the listing of the new CV unit could be in the range of 280-350. After listing, the dummy entry will be removed and the actual market value of the new company will be added, resulting in a balanced rebalancing of the index.

Which companies will remain in the index? According to Harshal Dasani of INVasset PMS, the Passenger Vehicle Unit (TMPV) will remain in the index due to its larger market cap. However, the Commercial Vehicle Unit's free float and liquidity will determine whether it will be included in the Nifty 50 or Sensex. If it does not meet the criteria, it may be removed in the next index rebalancing.

Impact on Passive Funds: Index funds and ETFs will require portfolio rebalancing after the demerger. Funds will be required to add shares of the new CV company on listing day, which may increase trading volume and volatility. Prashant Tapse says, "Fund managers will hold shares of both companies for now. The Passenger Vehicle Unit has a strong long-term outlook, while the CV Unit has potential for value discovery." Dasani believes that "passive funds that track the Nifty 50 and Sensex will have to adjust their holdings to accommodate the new structure. This could lead to some short-term volatility."

What it means for investors: Analysts say the demerger won't fundamentally impact the index value, but there could be some technical fluctuations for a few days. This is a mechanical adjustment, not a significant impact on the business fundamentals. "Tata Motors investors need not worry. Both companies will grow focused and independently in their respective segments," Tapase said.