Mumbai: Kotak Institutional Equities recommends buying holding companies given the current valuations and large holding company discount.The brokerage said it is seeing diverging performance for small finance bank shares leading to holding company discount for Equitas Holdings declining to below 30% from around 45-50% levels since listing of the small finance bank. The brokerage said the discount for Ujjivan Financial Services is still around 45% compared to around 50% average since listing.Shares of Equitas, which ended up 1.9% at 70 on Friday, have risen 83% since March 23 — when the market rebound began. Ujjivan Financial Services, which rose 4% to Rs 283.45, have gained 94% during the same period.The RBI panel recommended that non-operative financial holding company should continue to be the preferred structure for all new licences to be issued for universal banks. However, it should be mandatory only in cases where promoting entities, converting entities or individual promoters have other group entities."We expect discounts to shrink as merger probability improves further and we continue to see better risk-reward in owning holdco shares due to attractive valuations for Equitas Holdings (0.7 times FY2022 estimated book) and higher holdco discount for Ujjivan FS,” said Kotak Institutional.
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