On October 14, 2025, most investors woke up to a surprise — Tata Motors' share price had apparently dropped from approximately Rs 660 (its closing of the day before) to almost Rs 400. That's almost a 40 % fall. If you looked at this in your portfolio, you would wonder: "Did the company crash overnight?"
But the situation is more nuanced. The steep decline is not because of a business collapse or unexpected losses. Instead, it is caused by a corporate demerger — a structural shift that changes how the business is split, valued, and exchanged.
Here's a straightforward and easy-to-understand explanation of why the price declined so sharply, what it implies for shareholders, and what to look out for in the future.
What is a demerger?
A demerger (or corporate split) is where a company divides one half of its business into a brand new independent entity. In this instance, Tata Motors chose to divide its business into two halves:
- Passenger Vehicles (PV) + Jaguar Land Rover (JLR) business — cars, electric vehicles, luxury brands.
- Commercial Vehicles (CV) business — trucks, buses, and allied operations.
Once split, each portion is a distinct company (having its own finances, management, and share listing). This allows investors to view the value of each portion more clearly, and allows each business to follow strategies best suited for its market.
Existing shareholders of Tata Motors will receive one share in the new CV company for each share they owned in the original company (a 1:1 basis). In contrast, the original company (to be renamed) will continue to exist as the PV + JLR business.
Therefore, post demerger, shareholders hold shares in two companies instead of one single firm.
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Why did the share price fall so heavily? (Technical adjustment, not an actual loss)
When the demerger takes effect, the original stock will be traded ex-CV business. That is, the market value allocated to the commercial vehicle division is deducted from the share price of the residual (PV + JLR) company.
So the huge fall from Rs 660 > ~ Rs 400 is really a re-calibration: the CV unit's value is allocated to the new firm, not the old one. It is similar to the scenario where you take away one large chunk of value from the old merged entity — the "remainder" is for the portion left behind.
If you calculate:
- Previous closing (prior to demerger): ~ Rs 660.75
- After demerger, PV + JLR business is worth approximately Rs 400 per share.
- The gap (~Rs 260.75) is implied value of CV business per share.
So, the sharp decline does not indicate Tata Motors lost value — it indicates the split has relocated part of the value to another stock.
What this means for shareholders
If you were holding Tata Motors shares prior to the record date (October 14, 2025), this is what happens:
- You will keep owning your shares in the rechristened company (passenger vehicles + JLR now).
- You will also be receiving shares in the new CV company on a 1:1 ratio (one CV share for every share you hold).
- The recently newly carved-out CV company will become listed in stock exchanges shortly (intended within 45–60 days or so).
Therefore, the overall worth you possess (in the two stocks together) should ideally stay near to what it used to be (discounting market fluctuations). The fall is largely notional in the original stock, since a portion of its value has "shifted" to the new stock.
Meanwhile, though, before the CV business is floated and traded, you might not notice that component of value in your portfolio. That can make it uncertain and volatile.
What value do analysts currently assign to each business?
Post-demerger, analysts are attempting to value each half separately. Some insights:
- Nomura has placed a value on the PV + JLR business unit and CV business unit almost at the same amounts (Rs 365 - Rs 367 per piece) and cautioned for short-term volatility as the market digsests the demerger.
- During the first few days of trading post-adjustment, the PV share even appreciated ~4% above its Rs 400 opening, reflecting investors' revived interest.
- The listing of the CV business is watched closely: how it performs will matter for the combined valuation and investor returns.
Because the two businesses are quite different (luxury & passenger vehicles vs trucks & buses), their growth, margins, and risks will be judged separately from now onward.
What are the risks and uncertainties?
While the demerger is intended to unlock value, there are some risks investors should be aware of:
- Volatility & technical risk – As experts caution, in the short run, both companies' share prices can fluctuate wildly as the market absorbs fresh financials and investor moods change.
- Delayed listing of CV business – The new company for commercial vehicles will have a lag time (est. 45–60 days) before it gets listed, so its shares are not likely to be tradable right away.
- Dependence on JLR – The PV + JLR segment has Jaguar Land Rover, which has experienced issues such as cyberattacks, global supply chain pressure, and trade policy threats.
- Macro & auto industry headwinds – Passenger and commercial vehicle demand may be cyclical and be impacted by commodity prices, interest rates, regulation, and global demand.
- Valuation risks – If one unit performs poorly, or investors expect too much, valuations may compress, leading to downside risk.
However, risks aside, demerger is a strategic wager: isolating the businesses can provide greater clarity, improved capital allocation, and keener focus for each.
Why the company could have done this? (Benefits of demerger)
Why break up the business in so complicated a manner? Here are some of the benefits:
- Better transparency: With separate books and financials, investors can see exactly how the PV & JLR arm is doing vs the CV arm, without cross-subsidies or blended metrics.
- Focused management: Each business can tailor strategies, investments, and partnerships suited to its segment (for example, EVs and consumer cars vs logistics and heavy vehicles).
- Unlocking value: In many conglomerates, some units are undervalued because strengths lie dormant in an integrated framework. Splitting can unlock dormant value.
- Strategic flexibility: The CV business may appeal to other investors or partners, while the PV + JLR can go for electric car expansion more aggressively.
- Better comparability: The PV + JLR business can be compared to other automobile firms; the CV business with truck/transport peers.
If done successfully, demergers tend to result in improved longer-term performance compared to being one gigantic, diversified business.
What to do next as an average investor?
If you are a typical investor (not an institutional behemoth owner), follow these tips:
- Don't panic at a 40 % fall in Tata Motors' share. The decline is substantially technical, not a fundamentals crash.
- Verify if you had shares on record date — that determines if you receive the new CV shares or not.
- Anticipate waiting time for listing of CV stock; in between, your portfolio can reflect missing value.
- Monitor the two companies separately from now on — their results, guidance, margins, etc.
- Exercise care with leverage — beware of over-borrowing against very volatile stocks in transition.
- Diversify your holding — don't put all your eggs in one company, particularly in times of structural change.
- Consider long-term potential, not short-term price action — value unlocks tend to occur over months or years.
Timeline & key dates (approximate)
Below is a rough estimate of how this demerger is being implemented:
| Event | What happens |
|---|---|
| Demerger becomes effective | The separation between PV + JLR and CV units is formalized (from October 1). |
| Record date (October 14) | Shareholders as of this date will be eligible for shares in the new CV company. |
| Stock begins trading ex-CV | The original Tata Motors stock begins trading without the CV business embedded, hence the observed drop. |
| Listing of new CV company | The CV business is expected to get listed on stock exchanges in approximately 45–60 days. |
What Investors Must Do Now – Hold or Sell Tata Motors Shares
Ever since Tata Motors' abrupt decline from Rs 660 to Rs 400, most investors are perplexed about whether to sell or hold their stocks. The silver lining is that this decline has not happened due to any loss or poor performance but owing to the demerger of the company, as a result of which it had split its Commercial Vehicle (CV) division from the Passenger Vehicle (PV) and Jaguar Land Rover (JLR) segments.
Analysts and experts are recommending that investors retain their shares rather than selling them in fear. The steep drop is a technical price correction rather than an actual loss of value. After the CV business is separately listed, shareholders will have two companies, and together the market capitalization will be much the same or even greater than before. PV and JLR businesses are doing well, particularly with the expansion of electric vehicles and premium car sales.
In the long term, this demerger can free more value, enabling each business to concentrate on its strong points and draw investors of its type. Short-term volatility is inevitable, however, until both companies achieve stable valuations. Long-term holders must therefore remain patient, monitor both stocks post-listing, and look at performance before they sell.
In short:
- For long-term investors — Hold.
- For short-term traders — expect fluctuations, but avoid panic exits.
Disclaimer: The article is intended for informational purposes only and does not represent financial, legal, or investment advice. Always conduct your own research or consult with a qualified individual before making any investment choice.