Inclusion in both of these invariably results in a stock getting more investment, particularly exchange-traded funds. This has not been the case with the DVRs. Since April 2016, while shares of Tata Motors have gained 21.5 per cent, the ones with DVR have declined 4.3 per cent.
Analysts say lack of dividend payouts and liquidity concerns could be reasons. The DVRs are similar to ordinary shares but come with less voting rights (one vote for 10 DVR shares as against one vote for one ordinary share). To compensate, the DVRs pay higher dividends.
One reason investors have preferred the ordinary shares is there have been hardly any dividends paid by the company to lure them towards the DVR ones, analysts say. Tata Motors isn’t a big dividend payer. In FY15, it paid none; in FY16, only Rs 0.3 on one DVR and Rs 0.2 per share.
Another important reason why institutional investors have preferred exposure to Tata Motors through ordinary shares is liquidity. “Trading volumes in DVRs are typically a fraction of ordinary shares. Large investors prefer the more liquid ordinary shares, as they usually buy and sell huge blocks,” said an analyst.
Limited voting rights is another issue. “Our conversation with institutional clients show they prefer shares with voting rights. That’s one of the reasons why DVRs are under-owned,” said Deven Choksey, managing director, KR Choksey Investment Managers.
However, given the wide discount at present, many feel the DVRs could outperform. Ambareesh Baliga, independent analyst, says there is no reason for DVRs to quote at such a huge discount when they are only ordinary shares with limited voting rights.
Choksey says with inclusion in the Sensex, the DVRs will gain more acceptance as funds tracking these will soon start buying in the counter.