Buy Cairn India at 17% discount to CMP!

Cairn Energy holds 65% stake in Cairn India. Cairn India has a market capitalisation of Rs 30,836 crs as on 9th March closing whereas its parent Cairn Energy is trading at a market cap of 2.35bn pounds at the London Stock Exchange which equals to Rs 16,607.45 crs if one goes by the exchange rate of GBP = Rs 70.67. Cairn Energy’s 65% stake valuation comes to Rs  20043.4 crs which is 17% discount to the market cap on the NSE. I wonder is the 17% discount given to the holding company. The risk here is that one cannot bet with certainty that the discount price between the FTSE and NSE will narrow going forward. I am not sure about the holding company discount in the European markets but in India it can vary widely between 5-75%.

I am not advising to buy or recommend anything. Its just that if you wanna buy Cairn India then buying through Cairn Energy makes sense. I think this is the reason for the biggest hedge fund HSBC India Fund to buy Cairn Energy rather than Cairn India. Another benefit could be no risk of currency fluctuation as the fund is based in UK.

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