A holdco discount is the difference between the market cap of the holding company and the mark-to-market value of all the subsidiaries.
Domestic brokerage K R Choksey in a note has highlighted investment opportunities in holding companies
(holdcos). It has identified five such firms where it sees an upside potential between 30 per cent and 57 per cent.
The brokerage believes investors
can invest in holdcos to diversify risk.
“Investment in holding companies
is one of the most convenient route to achieve portfolio diversification goal, allowing for stable returns while diffusing the overall investor risk. Holding companies
have interest in diversified industries and sectors, which react differently to economic cycles, limiting downside risk to investor capital,” says a note by K R Choksey.
Eid Parry and Bajaj Holdings & Investments are two holdco stocks where it sees maximum upside potential as they trade at a deep discount to the combined market value of their portfolio companies, even after factoring in the ‘holdco discount’.
A holdco discount is the difference between the market cap of the holding company and the mark-to-market value of all the subsidiaries. This discount can vary from 20 per cent to 60 per cent depending on factors, such as the nature of business of the holdco, taxation, and the dividend payout policy of subsidiaries.