A Tata Motors logo installed at one of its showrooms is pictured in Mumbai on Jan 27, 2022. (PHOTO / AFP)

BENGALURU - Shares of Tata Motors, India's most valuable carmaker, hit a record high on Tuesday, a day after the company said it will split into two listed firms, separating its commercial vehicle business from its passenger vehicle arm.

The stock, currently up 4.6 percent, is leading gains on the Nifty Auto index, which is up 1.4 percent. The stock rose as much as 7.9 percent to hit its all-time high of 1,065.6 rupees.

The carmaker is also the top gainer on the blue-chip Nifty 50 index, which is down 0.3 percent on the day.

Tata Motors was the best-performing stock on the 15-member Nifty Auto index last year, more than doubling after the company turned profitable on the back of strong luxury car sales

The demerger would allow Tata Motors' passenger vehicle business to directly compete with industry leader Maruti Suzuki, Ashwin Patil, senior research analyst at LKP Securities, said.

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With South Korea's Hyundai potentially listing in India and Mahindra & Mahindra as the fourth top carmaker, investors would have a wider range of options to choose from as competition intensifies, Patil said.

The passenger vehicle company will house Tata Motors' lucrative Jaguar Land Rover business.

Tata Motors was the best-performing stock on the 15-member Nifty Auto index last year, more than doubling after the company turned profitable on the back of strong luxury car sales.

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The "buy"-rated stock has scaled new peaks this year, outperforming its peers. It has risen 32 percent in 2024 compared with a roughly 13 percent rise for the auto index.

Analysts at Nomura do not expect the demerger to result in any immediate change in the way investors value Tata Motors. In the medium term, the businesses should still be able to pursue their respective strategies with greater freedom, the analysts said.

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Shareholders will have an identical holding in both listed companies after the split, Tata Motors said on Monday.

The demerger will be presented to the board in the coming months and will take 12-15 months after that for the necessary approvals.