Investors looking for defensive bets in a volatile market such as the current one can consider the stock of Bajaj Holdings and Investments (Bajaj Holdings).

The discount between the net asset value of its investment book and current price of the stock has widened to record levels, which while protecting the downside offers scope for decent returns.

Bajaj Holdings holds equity stakes in Bajaj Auto (31.5 per cent), Bajaj Finserv (38.7 per cent) and other Bajaj group companies such as Maharashtra Scooters, Bajaj Electricals and Bajaj Hindustan. Apart from these investments, Bajaj Holdings has exposure to companies such as ICICI Bank, Force Motors and has smaller sums invested in large-cap stocks.

At the current price of Rs 739, the stock trades at a 66 per cent discount to its estimated net asset value at today's prices. Even after accounting for a holding company discount of 30 per cent, the stock is undervalued. The stock has a dividend yield of 4.7 per cent.

The steep discount does not appear justified as the prospects of underlying stocks are bright too. This means there is a possibility of catch-up by Bajaj Holding stock after a lag. The investment book is dominated by Bajaj Auto which accounts for close to two-thirds of the net asset value. This is followed by Bajaj Finserv which, apart from being a holding company of Bajaj Finance, is also into insurance (life and general) and plans to enter distribution business.

Bajaj Holdings actively churns its non-group investments. Last fiscal, it pared its holdings in banking and finance while investing in large-cap stocks such as Reliance Industries, Coal India, BHEL and L&T. The company which saw decent profits from sale of investments managed to invest most of these proceeds, thereby having low cash holdings.

Subdued markets would mean lower earning from sale of investments for some time. Yet, it may maintain its dividend per share as it managed to vary the payout to maintain steady flow of dividend.

For the half year ended September 2011, the net profit of Bajaj Holdings fell by 33 per cent. Despite its dividend income almost doubling, the company realised only Rs 36 crore of profit on sale of investment as against Rs 462 crore a year ago. As equity markets revive profits may flow in from sale of investments as well. Interest income grew by 25 per cent year-on-year for the half year ended September 2011.

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