Suresh Krishnamurthy

INVESTMENTS in the stock of Tata Investment Corporation can be considered.

The stock is trading at a significant discount to its intrinsic value. This discount offers considerable downside protection to investors. This is valuable considering the excessive volatility in stock prices. Investors can also consider putting in a small sum each month in this stock.

As an investment company that holds a portfolio of stocks, bonds and mutual funds, Tata Investment Corporation is akin to a close-end mutual fund. The company's investment portfolio is now worth in excess of Rs 1,500 crore. About 60 per cent of its portfolio is in equities. A substantial proportion of the investments are in a number of Tata group companies. As of March 2005, the net asset value of the company was about Rs 430. Given the sharp upturn in stock prices since then, the net asset value could have appreciated by at least 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, to name a few, also need to be factored into the net asset value.

An estimated net asset value per share of about Rs 600 per share appears fair in this context. The stock last traded at Rs 300 and the discount works out to a significant 50 per cent. Even if the discount level remains high, investors will benefit from rising dividends.

Investors will, however, need the patience to hold the stock for a two- to three-year period. Specifically, investors should not buy now and offload in market downturn, if any. In contrast, if investors hold the stock through a few market cycles, returns are likely to be attractive and commensurate with risks involved.

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