Should you invest in Tata Motors DVR shares?

Tata Motors DVR shares are up 19 per cent since March 28 as compared to 4 per cent gain in Tata Motors stock over the same period. The huge discount between the two category of shares has led to a sharp rise in Tata Motors DVR.

Tata Motors DVR is currently trading at over 45 per cent discount to Tata Motor shares, though analysts say there is no reason why DVR shares should trade at a discount to ordinary shares. However, as the discount narrows, the performance in DVR shares is likely to be in line with ordinary shares.

The Tata Group now owns only 0.88 per cent of DVR shares, while FIIs and DIIs own 49 per cent and 39 per cent respectively. Only 11 per cent of Tata Motors DVR shares are in retail hands.

As of 10.15 a.m., Tata Motors DVR traded 1.82 per cent higher at Rs 234.65 as compared to 2.14 per cent rise in Tata Motors shares.

Here's all that you need to know about Tata Motors DVR.

What is a DVR share?

DVR stands for Differential Voting Right. Companies issue DVR shares to prevent any hostile takeover and dilution of voting rights. This also helps strategic investors who are looking at a big investment in a company, but with fewer voting rights. A Tata Motor DVR has 10 per cent voting right as compared to an ordinary Tata Motor share.

Why should retail investors invest in DVRs?

DVRs are suitable for retail investors who are not concerned with voting rights as they don't intend to affect the decision making of the management. The same company's shares are available at a lesser price for the same fundamentals. Besides, Tata Motors DVR fetches 5 per cent higher dividends as compared to ordinary shares of Tata Motors.

What are the disadvantages?

DVR shares are usually thinly traded. Also, during bearish phase, the discount over Tata Motors shares could widen and this could be a dampening factor.