The future of India's first semiconductor plant and the country's ambition to replace China as a major supplier toAppleface growing uncertainty after Tata Sons Chairman N. Chandrasekaran said he would no longer seek another term.
Tata Group has made some of the "largest capital commitments" under Chandrasekaran's leadership, which in the latest letter to shareholders he described as the building blocks for India's road to becoming a developed country by 2047.
Tata Sons, the holding company of Tata Group, also acquired beleaguered national carrier Air India in 2022, started iPhone production after buying Wistron and Pegatron, reportedly overtaking Taiwanese companyFoxconn's India unitto become the country's largest Apple supplier.
In 2024, it unveiled plans to set upIndia's first semiconductorplant worth $11 billion in partnership with Taiwan's Powerchip Semiconductor Manufacturing Corp.
All these initiatives by the slat-to-steel conglomerate that also owns luxury automaker JLR are in the early investment cycles and are not churning profits.
The decision to take bold bets, risking losses at a time when the group's top money-spinning company,Tata Consultancy Services, grapples with theimpact of artificial intelligenceon the information technology sector has led to a rift between Tata Sons and its key shareholder, Tata Trusts, experts said.
The current "struggle" between Tata Trusts and Tata Sons arises from capital allocation to loss-making businesses, Ruchir Khare, chief investment officer at portfolio management firm Two X Capital, told CNBC, adding that the chairman's impending departure raises questions over the group's commitment to making large, long-term investments.
Chandrasekaran is seen as the "professional successor" to the late Ratan Tata, who had appointed him, said Khare, adding that the lack of continuity implies there is a difference of opinion among the two power centers on the future direction of Tata Sons.
On Thursday, a day after Chandrasekaran gave up on another term as chairman,expressing displeasure at the delayin finalizing his reappointment for another five years, the process has formally begun to look for the 63-year-old's replacement.
Sir Dorabji Tata Trust, part of the key trusts that together hold a 66% stake in Tata Sons, said in a statement that it "respects Mr. Chandrasekaran's decision not to offer himself for re-appointment" and extends "full support to Tata Sons in ensuring a smooth, timely and orderly transition of leadership."
Chandrasekaran, in his resignation letter on Wednesday, said the proposal to extend his term had been pending for six months and "was not carried through because one of the Board Members did not support it." As per local media reports, he had disagreements with Noel Tata, the chairman of Tata Trust, over the weakening profitability and capital allocation to loss-making businesses.
During the financial year ended March 2026, Tata Sons' consolidated net profit slipped 35% to 266 billion rupees (about $2.78 billion) as losses from Air India, Tata Digital and Tata Electronics piled up, as perTata Sons' latest annual report.
While all these loss-incurring businesses are unlisted, the market capitalization of Tata Group's listed companies dropped 12% during the same period, as shares of its IT service companyTCS correctedon concerns over long-term growth outlook.
Tata Sons did not respond to CNBC's request for comments, while Tata Trusts did not reply to questions around capital allocation concerns.
Tata Trusts, which relies on the income generated by Tata Sons, wants to be conservative with capital allocation at a time when its key cash-generating IT services business is under pressure, said Anil K. Sood, professor and co-founder of Mumbai-based Institute of Advanced Studies in Complex Choices.
Air India acquisition, for example, is not only draining capital, but also "damaging" the Tata brand due to its frequent operational issues, he said. Meanwhile, a cash-rich, high-margin IT services business is being disrupted by AI, and investments are being made in "commoditized" businesses, Sood said.
Experts point out that in this power struggle,Tata Trustshas the upper hand as it plays the role of a kingmaker by deciding the leadership at Tata Sons.
This dual power center led to the unceremonious exit of another Tata Sons Chairman, Cyrus Mistry, a decade ago. Mistry was ousted from his role in 2016 following public spats with Ratan Tata, who at the time was heading the Tata Trust.
"I look at the current situation with a lot of irony," Ramesh Vaidyanathan, managing director at BTG Advaya, an Indian law firm specializing in corporate dispute and transactional law, told CNBC.
Mistry was focusing on "maximizing return on equity" and being "clinical" in cutting back investments, while it was Ratan Tata who wanted the business to take bolder bets, said Vaidyanathan, adding that in the current boardroom battle, roles have reversed.
While the Tata group has lived long with this dichotomy of two power centers, experts said that the current tussle between Tata Trusts and Tata Sons is particularly pressing as it comes at a time when the business is in the middle of a serious investment cycle.
They added that Chandrasekharan's successor will have an unenviable role of managing a course correction that the Tata Trusts want while delivering a message to the markets that the group is prepared to face the next wave of global challenges.
Tata Sons has convened its annual shareholder meet on Aug. 18, where the board is likely to discuss succession, as Chandrasekaran's term ends in February next year.
