Conglomerate investing: Smart risk diversification in volatile markets

INVESTING IN THE markets has been challenging in the past one year and more so in recent months. While local cues in terms of GDP growth, indirect tax reforms and lower inflation have been supportive, global factors and their impact on the economy and corporate earnings appear adverse.

- ASHALETHA K.R.

Trade tariffs, greater push to regionalisation, rising yields and a general global slowdown due to factors such as supply chain disruptions as well as geopolitical tensions are affecting domestic companies, especially exporters.

Volatility may well be the norm in the markets in the near to medium term.

Given this background, investing in proven conglomerates—business groups with operations in many industries—may be a suitable move given the diversification they provide.

Conglomerates tend to have deep pockets, captive financing arms, economies of scale, lower cost of capital and the ability to have operational integration, giving them considerable advantages and business resilience. Also, as corporate earnings decelerate, it may be safer to stick to conglomerates as they tend to enjoy more stable cashflows.

Given that conglomerates span all market capitalisations, they lend themselves to a flexicap investment approach.

Smooth sailing with conglomerates