A Tata firm with no analyst coverage becomes the top-performing stock this year

A Tata firm with no analyst coverage becomes the top-performing stock this year

A Tata Group firm with zero analyst coverage has become India’s top-performing stock this year, underscoring regulator fear of overheating in Indian stocks.

Tata Investment gained 116% so far this year, buoyed by the news of Tata Sons’ initial public offering, according to a Bloomberg report. Tata Sons owns 68.5% stake in Tata Investment, whose only source of revenue is dividends from investments. It is valued at 2.4 times 12-month book value on par with HDFC Bank and more than State Bank of India, according to Bloomberg data.

Abhilash Pagaria, strategist at Nuvama Wealth Management, terms it as a prime example of “excessive behavior in the bull run”. “The stock’s low liquidity and small market capitalization have amplified price swings, and a downturn can be expected,” he told Bloomberg.

The rally comes as the “froth” in small- and mid-cap stocks draws the attention of the Securities and Exchange Board of India. The market regulator last month asked mutual funds to protect investors amid concern that some parts of the nation’s $4.5 trillion stock market have become overly exuberant.

SEBI on Monday said it is open to revising rules for mutual funds investing in small-cap stocks amid rising concerns about stretched valuations for this segment. It said it will review its rule that mandates small- and mid-cap funds to invest at least 65% of their assets in such stocks if fund managers find it is “restraining risk management,” Chairwoman Madhabi Puri Buch told reporters in Mumbai.

Her comments come amid regulators’ growing concerns over some parts of the economy and markets showing signs overheating due to a boom in the nation’s equities. Last month, Sebi asked money managers to take steps to protect investors from the froth building up in small- and mid-cap stocks following large inflows into funds investing in these segments.