What are holding companies? Why do they draw value investors in?

A business with no business?

Did you know there are businesses that don’t offer any goods and services or have any operations? That's right! These are called holding companies.

So, how do they make money?

Holding companies exist to own stakes or invest in other companies and assets. They earn income from dividends and interest on their investments.

Are there holding companies listed in India?

Some Indian-listed examples include Tata Investment Corporation, Bajaj Holdings, JSW Holdings and Kama Holdings. Their business? Holding investments elsewhere.

Why would anyone invest in companies with no direct earnings?

The answer lies in their valuations. Holding companies often trade at steep discounts to their portfolio value, drawing in seekers of value.

For example

Kama Holdings holds a 50% stake in SRF, whose m-cap is worth Rs 66,000 crore. Kama trades at a market cap of Rs 7,900 crore–a 76% discount to its portfolio value.

Before you rush to invest

Know that these discounts exist for a reason. Holding companies face low liquidity, regulatory hurdles and don’t offer direct ownership in their portfolio companies.

Not all is known at first glance

Further, before investing, valuing a holding company accurately is crucial as they hold publicly traded as well as hidden investments.

How to do that?

How can you value them accurately, then? When should one invest to make substantial gains? You can get the answers in our full story. Click on the link below.