Markets seem to be on their way down. The analyst community is still guessing the next day?s index move. Gap down opening are leaving the traders clueless and volatility is the order of the day. Newspapers are agog with the description of the market plunge. However, there are stray incidences where the stocks have bucked the trend.

After running through the winners, the presence of Consolidated Finvest was an eye catching one. The stock has not only bucked the trend in terms of price movement but there was also an FII purchasing the stock, contradicting the broad market trend. The buying FII ?Ruane and Cunniff & Goldfarb Inc? have a good track record in the world of investment, as an investment advisor for the celebrated Sequoia Fund. And this had made further inquiry a must. Though the turnover and other financials does not give any clue, the investments in its own capacity and through its subsidiaries in Jindal group companies threw light on the potential hidden in the company.

After further inquiry into Jindal South West Holdings? shareholding pattern, there appeared names like George Soros? Quantum fund along with Reliance mutual fund and HSBC. Both of these holding companies enjoy investment from some of the celebrated investors in the world.

On the one hand, holding companies are being preferred by some of the investors and on the other, there is Kotak PMS, which has come out with a product for high networth investors that will invest in ?incubators? -holding companies- companies having a mix of businesses and investments in other companies. All these developments certainly warrant a look into the investment opportunity offered by these ?stores of value? as they are popularly known to some of the savvy investors.

Opportunities

To understand the opportunities offered by the companies you must go beyond the conventional ?EPS?-driven thinking of looking at a stock. These companies are not really popular for their turnover and profit numbers. If you are looking at them, you must consider their interest in various assets they hold either on their books or in the books of their subsidiaries or through their investments. It is a case of ?proxy play? on various investment ideas.

There are three types of companies that fall under this theme. First: pure play holding companies. These are vehicles formed by the promoters to control the companies wherein they have stakes. These companies hardly do any business. Their chief source of income is cash flows they get from the investments they hold. The investments in the books of the companies are of strategic nature and they are not available for a sale. The investments are diluted or change hands only in case of ?group restructuring.?

The second type is the investment company. These companies are into the business of investments. Investing being a core business, they are like close-ended mutual funds that are traded on the stock exchanges. Typically, such companies do not carry out any other business.

Last but not the least is the conglomerates that have diversified business interests. These companies may have a core business. But over a period of time they enter into diverse businesses catering to multiple segments of commerce or float subsidiaries that specialise in such businesses.

This is a peculiar feature as larger organisations either come across businesses that may offer returns in excess of that offered by the core or parent business. You may also come across some companies that have only one core business and a strong investment portfolio.

Investment proposition

The theme is a classic example of value play in the market. The pure holding companies fall within the deep value bets in the market. These companies being a vehicle to hold on to shares or to control the businesses do not attract investor interest. You must be patient enough to hold on to these companies. You cannot see daily excitement in these counters.

Rather these counters truly stand the Buffett wisdom, ?Investment is like a flight– hours of boredom and moments of excitement.? No wonder that they quote at phenomenal discount to the underlying value. If you are an investor who can sit tight through the ups and downs of the market then there is a possibility that you will gain as the underlying assets appreciate in value. You can buy into the holding companies when their investments are expected to do well or at a time when their potential is not truly recognised.

Beyond the Jindal group holding companies mentioned above, Aravali Securities, a holding company of Poddar group for Sirpur Paper, and Nalwa Sons, a holding company of Jindals, look attractive to the deep value investors.

The investment companies, on the other hand, are more dynamic bodies than the holding companies. Take the case of Tata Investment Corporation. The Tata Group company primarily invests in various Tata Group companies and other blue chip stocks in the Indian equity markets.

Buying the shares of this company is as good as buying into the units of a close-ended mutual fund. A track record of consistent dividends over the years along with bonus payouts makes it a formidable option in the sphere. Needless to say, the price of the stock is at a steep discount to the underlying value of the stock. Aeonian investment is another such company.

If you have a larger appetite for risk, you can also consider a stock like HB Stockholding, which holds a significant number of shares in JP Associates. Like any other equity mutual fund, the investment companies are rewarded with dividends and capital appreciation on their investments.

Also, an investor who prefers to buy assets at steep discounts and do not want to track individual stocks can consider the investment companies after doing his/her homework well. Such counters are safer bets, especially at the time of market carnage you may consider taking exposure to these companies, if you are unsure of which stocks will bounce back.

Third and the most attractive bet in this theme are the conglomerates. As described earlier they keep creating value for their shareholders over a long period of time. Take the case of Reliance Industries. A couple of years ago, the separation of both Ambani brothers led to the creation and subsequent listing of several companies. This separation was earlier seen as a destroyer of value by the broad market. The stock prices also faced pressure for some time.

However, in hindsight it became a good deal for those who bought into Reliance Industries at that time. Even now, Reliance Industries is seen not only as a pure play on its core oil and petroleum business but also discounts its retail venture, gas E &P business and interest in Reliance Petroleum.

The demerger on the cards of Bajaj Auto is seen as another value creator, on the lines of Reliance Industries, by some of the investors. Another case in the point is Reliance Capital. The primary business of this company is financial services. However, it has now become the flagship company of ADAG and is being used to float new generation businesses that are expected to offer tremendous growth going forward. It has become a holding company for ADAG.

Demerger is a value creator for conglomerate entities. So is the case with capital offers and subsequent listing of subsidiaries and joint ventures. Mahindra & Mahindra is a good case study. Over a period of time the company has managed to enjoy better valuations over its peers, thanks to the listing of Tech Mahindra and Mahindra & Mahindra Financial Services. In this, the core business of farm equipments and auto manufacturing is driving the growth for M&M. Aditya Birla Nuvo, the flagship company of Aditya Birla group is another case of a conglomerate entity. Beyond these conglomerates, there are opportunities like HDFC and ICICI banks, where the company has a core business -money lending- but with the investment portfolio and interest in its subsidiaries have made them bargain buys even at high valuations for long-term investors. You should note that George Soros, Sequio fund, Swiss Re and Goldman Sachs are picking up stakes in ICICI Holdings.

Concerns

Things look great when we discuss these stores of value. But one point you must never forget is that value if not unlocked and recognised by the market forces, is as good as no value to the investors.

Experts reckon that the ?catalyst? to value unlocking is a must when you are exposing yourself to such opportunities. Absence of such catalyst is a big threat to any value recognition in such bargains. Catalysts are of various types. A group restructuring is one such catalyst. It is crucial especially in pure play holding companies. If you don?t see anything happening on these grounds, be sure that the opportunity is a real deep value one. In other words, you have to be ultra-patient with them.

Holding companies offer less to the non-promoter investors, as the aim of such companies is to protect the promoter interest. Promoters typically may not have any interest in value unlocking activities as their primary aim of controlling the business is satisfied.

Also, as the holding companies create layers between the exposure to the assets and the investors, the market offers a lower discounting. Hence, there is a possibility that the steep discounts may further become steeper. Promoter integrity is another issue as Indian corporate history is full of asset sales at throw away prices from public listed companies to the privately-held promoter group companies. The traded volumes being low the entry and exit may not be smooth.

If you are planning to go for an investment company, do have a look at the portfolio. Sometimes you may come across a company that has exposure to a couple of bets. This amounts to high concentration risk. In such circumstances it may make more sense to take direct exposure to the stock as the market more actively values the stock than the investment company.

For conglomerates the things are a bit sticky. There exist issues regarding valuation of unlisted investments and related party transactions. The future plans and the progress on announced ventures are to be tracked on regular basis.

You may come across some fly-by-night players who announce demergers of the businesses, which never existed, with the sheer intention of attracting gullible investors. You have to read through the legal documents explaining the scheme of arrangements for the demergers or spin-offs. There are instances of placement of shares to the privately-held promoter group companies. They are real grey areas. The complexity of these transactions is sometimes used to shield some transactions from your eyes. These can be money-losing games if you can?t get into the details. At the same time, if you can read through the nitty gritties you may end up making money.

Investing in such companies is not a cakewalk for sure. But it pays those who are willing to do that extra bit of homework to reap the dividends. Though there are counter opinions on whether one should invest in such stores of value, both the sets of investors admit that if at all this is a game, it is a game meant for a long term investor having a sizable amount of patience and risk appetite.