Financial Daily from THE HINDU group of publications
Sunday, Dec 26, 2004
Financial Daily from THE HINDU group of publications Sunday, Dec 26, 2004 |
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Investment World
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Stocks Markets - Recommendation Money & Banking - Stocks Tata Investment Corporation: Buy
Investors can accumulate the shares of Tata Investment Corporation, an investment company that is part of the Tata group. The stock is trading at a discount of more than 50 per cent to its fair value. Investments made now offer considerable downside protection. Such downside protection is valuable given that stocks are ruling at valuations factoring in continuation of the uptick in industrial activity. At such a discount it also provides an opportunity to reap returns in the form of growth in dividends. Tata Investment Corporation distributed dividends of Rs 10.1 per share, including a special dividend of Rs 4.10 per share. Investors would, however, need the patience to hold the stock over a long term. Specifically, investors should not buy now and offload in a market downturn. In contrast, if investors buy now, hold through any market downturn and sell a few years down the line when stock prices are trading at similar or higher valuations, the returns would be commensurate with the risk involved. Tata Investment Corporation can be viewed as a perpetual close-end mutual fund. The company's investment portfolio had crossed the threshold of Rs 1,000 crore by end-March 2004. About 62 per cent of its book value is invested in equity shares. A substantial proportion of the book value is invested in a number of Tata group companies. By end-March 2004, the net asset value of the stock was about Rs 458. Given the sharp upturn in stock prices, the net asset value should have appreciated by another Rs 100. Besides, the value of the company's holdings in associate companies such as Tata Asset Management, Tata Autocomp Systems and Tata Sons also need to be factored into the net asset value. An estimated net asset value per share just in excess of Rs 600 per share appears fair in this context.
Suresh Krishnamurthy
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