Wednesday, August 10, 2005

Family feud unlocks conglomerate discount

Earlier in the 1980s, Wall Street invented the conglomerate discount theory to make sure large conglomerates demerged so that investors could understand the fundamentals of each stock better. Though it was all a stunt to create more fee income. Just like the urge to merge 70s were. In India nobody worries about conglomerate discounts. In fact conglomerates are liked for their financial muscle and growth prospects . Unfortunately there are no Charlie Ergens in India who would launch a DTH platform on a Chinese satellite that had 60% chance of failure. All first generation entreprenuership in India is limited to software services. As soon as an IT guy sees 10 warm bodies who can code, he thinks of starting a company.
I am very happy with warring brothers. Not because they provide great fodder for the media with AGMs that look like soap operas. The Reliance AGM was full of such things, the elder brother holding out his hand to his mom and entering the meeting. Elder brother thanking younger brother for contribution. Younger brother coming to the stage and re-iterating "mere paas maa hai". Great saga. Such sagas are also increasingly global , with Lachlan Murdoch leaving to go back to Australia to his mom.
The good thing about such family feuds is that they unlock conglomerate discounts. Reliance stock moved up from Rs.500 to Rs.700+ , once the feud got over. Plus every shareholders gets some stock in the demerged special entities. And Reliance Capital has been a stock market darling. Ek se bhale do, do se bhale teen..Dhinak din din.


At 12:39 PM, Blogger Parth said...

Very interesting read. I am amazed that the stuff you mentioned happened at the Reliance AGM. Must be a sight. Well, if you had Reliance stock, good for you :-)


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