Shares of listed holding companies such as Pilani Investment and Industries Corp., Kalyani Investment Co. and Nalwa Sons Investments jumped as much as 20% on Monday, following a regulatory move that is expected to aid price discovery and increase liquidity.
Holding companies typically hold various investments, including shares of other listed companies, but have no daily operations. They also trade at a steep discount to their book value due to low trading volumes and limited float. On Thursday, the Securities and Exchange Board of India (Sebi) proposed special call auctions with no price bands to check this anomaly.
Shares of Pilani Investment, Kalyani Investment, Nalwa Sons Investments, Vardhman Holdings, Bombay Burmah Trading Corp, Summit Securities, Maharashtra Scooters and JSW Holdings hit their all-time highs during the day’s trading.
An effective price discovery mechanism will narrow the gap between the market value and book value of holding companies, said Nirav Karkera, head of research at Fisdom. He said this will, in turn, boost the value of the holding company’s listed shares. He believes that the special call auction will increase participation in these shares.
Moreover, while prominent holding companies benefit from robust participation and trader interest, enabling efficient price discovery on the exchange, the call auction method could prove particularly advantageous for holding companies grappling with liquidity challenges.
“What was once a challenge for these companies, such as low float, has now turned a key lever driving prices higher. Investors are eagerly snapping up these shares ahead of the first special call auction, pushing many to their upper circuit limit today,” said Karkera.
On 20 June, Sebi said some investment companies (ICs) and investment holding companies (IHCs) are traded infrequently and at prices much lower than the book value disclosed by them. The gap between market price and book value hurts liquidity, fair price discovery, and investor interest. To address this concern, the regulator has “decided to put in place a framework for special call auction with no price bands” for effective price discovery.
Kranthi Bathini, director of equity strategy at WealthMills Securities said investors are snapping up shares of holding companies ahead of the first special call auction in October. Bathini sees this new framework as a positive initiative but emphasized that the key issue lies in determining which companies will qualify for this auction.
The circular said that to qualify for the special call auction, ICs and IHCs must meet specific criteria: they must be classified under uniform industry classifications, have their scrip listed and traded for at least a year without suspension, allocate at least 50% of their assets to shares of other listed companies, and have a 6-month volume weighted average price (VWAP) of their scrip below 50% of its book value per share based on investments in listed companies.
If these conditions are not met at any stock exchange, the scrip will not be eligible for the special call auction. Stock exchanges will provide a 14-day notice to initiate this auction process for eligible ICs and IHCs.Rea
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Published: 24 Jun 2024, 09:36 PM IST
