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Research Paper | Finance | Volume 15 Issue 8, August 2026 | Pages: 517 - 527 | India
Holding Company Discounts in India: Evidence from the Bombay Burmah Trading Corporation and Implications for the Semi-Strong Efficient Market Hypothesis
Abstract: This study investigates the valuation of holding companies in emerging markets, focusing on the Bombay Burmah Trading Corporation (BBTC) alongside a panel of Indian business groups. We utilize a 14.5-year dataset of daily prices to examine the limits of the semi-strong form Efficient Market Hypothesis (EMH). Implementing a tiered valuation framework, we document a structural discount averaging 56.1% to BBTC's measured Net Asset Value (NAV)?its 50.7% stake in Britannia Industries. Autoregressive models and formal Chow tests indicate this discount process exhibits near-unit root persistence and appears unresponsive to major macroeconomic shocks. Furthermore, Cumulative Abnormal Return (CAR) event studies suggest that macro events temporarily widen the discount rather than spurring price discovery. We also construct a stylized theoretical arbitrage simulation (long holding company, short subsidiary), which yields an annualized Alpha of -9.2% and a Maximum Drawdown of -86.7%, highlighting the severe real-world frictions preventing convergence. These findings provide out-of-sample evidence consistent with Shleifer and Vishny's (1997) limits to arbitrage framework. We argue that the observed discount is maintained in a non-stationary equilibrium driven by a confluence of limits to arbitrage, corporate taxation, and agency costs tied to concentrated promoter control. The evidence appears inconsistent with a strict interpretation of semi-strong market efficiency, as structural barriers prevent arbitrageurs from enforcing price parity.
Keywords: Holding company discount, Limits to arbitrage, Semi-strong EMH, Agency theory, Corporate governance, Indian equity markets, Business groups
How to Cite?: Anant Bokade, Nihal Patil, "Holding Company Discounts in India: Evidence from the Bombay Burmah Trading Corporation and Implications for the Semi-Strong Efficient Market Hypothesis", Volume 15 Issue 8, August 2026, International Journal of Science and Research (IJSR), Pages: 517-527, https://www.ijsr.net/getabstract.php?paperid=SR26807210156, DOI: https://dx.doi.org/10.21275/SR26807210156