Moneycontrol PRO

Looking to build a portfolio? Check out holding companies

In a volatile market scenario like the present one, everyone is looking for an investment which holds the promise of decent returns without being too risky. Holding companies are a good bet for investors with a medium-risk-medium-returns approach.

December 12, 2011 / 08:26 AM IST
 
 
live
  • bselive
  • nselive
Volume
Todays L/H
More

Moneycontrol Bureau


In a volatile market scenario like the present one, everyone is looking for an investment which holds the promise of decent returns without being too risky.


Holding companies are a good bet for investors with a medium-risk-medium-returns approach. A holding company is one that owns sizeable stake in companies within same group, to the extent that it has influence over the policies and management of that company.


The benefit of investing in a holding company is that you indirectly own the shares of the group companies. For example, if you buy into Bajaj Holdings, you get the advantage of investing in Bajaj Auto, Bajaj Electrical and Bajaj Finserv as well. This is because Bajaj Holdings owns close to 9 crore shares or 31.49% in Bajaj Auto. So when the share price of Bajaj Auto moves higher, so will Bajaj Holdings, in theory at least.


Another positive is that the share price of a holding company is less volatile. Due to the nature of the auto sector, Bajaj Auto may see adverse moves. While this will affect Bajaj Holdings, the price change will not be as sharp.


However, it is the same on the flip side also. Even if the fundamentals of the holding company are good, it may not be a good investment if it owns majority stake in a sick businesses. For example, debt-laden Kingfisher affected the prices of other stocks under the UB group.


How to check it?

Investors should check out the latest annual reports available on the company

stay updated

Get Daily News on your Browser