Reliance Vs Tata: Which investment is better?

In Mumbai, during a wedding function, Fatima Ben and Sarla Ben, who have been close friends for three decades, had a heated discussion as usual when it came to investing in the stock market. Fatima Ben has earned money from the Tata Group companies in the past 10 years, while Sarla Ben has earned from the Reliance Group. However, these companies vary on various fronts such as the size, their debt levels, their returns, the background of their promoters and  public holdings etc.  So what should you do with these companies? Let’s delve into it.

Sarla Ben says that in the past 10 years, the size of the Reliance Group has increased nearly 8 times. The group’s market capitalization has grown from around 2.5 lakh crore rupees to over 18 lakh crore rupees. With a market capitalization of approximately 16.5 lakh crore rupees, Reliance Industries is currently the most valuable company in the country. In the last decade, the company has acquired companies such as Network 18, Den Networks, Hathway Cable, Sintex Industries, and Just Dial. Additionally, they have acquired a 40% stake in Sterling & Wilson. Besides these acquisitions, they have also expanded into three new businesses. In 2016, they entered the telecom business under the name Jio, which today is the largest telecom network in the country and the third-largest in the world.

Another company, Reliance Retail is a leading retail company in the country with annual sales of approximately 2.25 lakh crore rupees. Under the Independence brand it currently sells its own FMCG products. In 2021, the group laid the foundation for their New Energy business, which will see the company investing in Giga Factories for the production of solar PV modules, electrolyzers, and wind power generation. However, during this expansion phase, the group’s debt has increased to around 3.20 lakh crore rupees across eight companies, although the returns have been quite substantial.

Reliance Industries Limited (RIL), despite the demerger of Jio Financial Services Limited (JFSL), has delivered the highest returns, nearly 8 times, during this period. Public stake of approximately 50% has remained stable for almost a decade, benefiting over 325 crore public shareholders who hold more than just a share in the company.

Now it’s the turn of Fatima Ben. According to her, Reliance may be the most valuable company in the country, the Tata group with a market cap of nearly 24 lakh crore rupees, is the most valuable corporate conglomerate in the country. In the past decade, the Tata Group has acquired foreign companies like Alti SA in France and also made domestic acquisitions such as Tejas Networks, Bhushan Steel, BigBasket, 1mg, Air India, and Nilachal Ispat.

For business expansion, this group has taken loans of nearly 2 lakh crore rupees, which has increased by almost 50% to 3 lakh crore rupees. Although the group’s total market cap has increased nearly fivefold in a decade, there are nine companies within it whose market cap has increased by more than 10 times.

These include Automotive Stampings, Tata Elxsi, Tata Metaliks, Tata Teleservice, Indian Hotels, Tinplate, Titan, Trent, and Voltas. This rapid growth has also benefited public shareholders because out of the total 28 companies, only 9 companies have public ownership of around 25%. In contrast, the public holds up to 70% in all other companies, with Voltas having the highest holding among them.

Now the question is, what should new investor do? Should you invest in Reliance group of Tata group?

Market Expert, Ravi Singh says “In terms of building a portfolio, due to the greater diversification compared to the Reliance Group, the Tata Group is considered better. However, from a 3-5 year perspective, allocate 60% of the total amount to the Tata Group and 40% to the Reliance Group. Within the Tata Group, consider investing in companies such as Tata Motors, Tata Power, Tata Steel, Tata Consumer, and Tata Chem. On the other hand, within the Reliance Group, allocate your funds only to Reliance Industries Limited and Jio Financial Services Limited.

Of the total amount invested in the Reliance Group, allocate 60-70% to RIL and 30-40% to JFSL. The expected returns are likely to be in the range of 23-28% annually for the Reliance Group and 18-26% for the Tata Group.

So, both Fatima Ben and Sarla Ben are right in their way. Both the groups have given good returns in the last one decade. As compared to Reliance group, Tata group is more diversified. Hence from 3-5 year perspective, you can allocate your capital in both these companies.