Holding company shares jump after Sebi’s special auction plan

An effective price discovery mechanism will narrow the gap between market and book value for holding companies and boost the value of the holding company's listed shares

Dipti Sharma
First Published24 Jun 2024, 09:36 PM IST
Stock exchanges will provide a 14-day notice to initiate this auction process for eligible ICs and IHCs. (Photo: Mint)
Stock exchanges will provide a 14-day notice to initiate this auction process for eligible ICs and IHCs. (Photo: Mint)

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.

Read more: Office leasing: Slow and steady wins the race?

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.

Read more: Ujjivan SFB’s investors appear focused on short-term challenges

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.

Read more: Red-hot Dixon stock has risks too

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

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.MoreLess

News in Numbers

Numbers that help you understand news better
1.4%

₹773 Cr

₹2,705 Cr

₹1 Cr

₹14,370 Cr

₹5.74 T

First Published:24 Jun 2024, 09:36 PM IST
HomeMarketsStock MarketsHolding company shares jump after Sebi’s special auction plan

Most Active Stocks

Indian Oil Corporation

166.90
03:58 PM | 12 JUL 2024
-7.6 (-4.36%)

Tata Steel

168.70
03:58 PM | 12 JUL 2024
-0.3 (-0.18%)

Bharat Electronics

333.30
03:59 PM | 12 JUL 2024
-2.25 (-0.67%)

Wipro

560.05
03:56 PM | 12 JUL 2024
25.7 (4.81%)
More Active Stocks

Market Snapshot

  • Top Gainers
  • Top Losers
  • 52 Week High

KPIT Technologies

1,864.00
03:57 PM | 12 JUL 2024
154.25 (9.02%)

Inox Wind

171.90
03:59 PM | 12 JUL 2024
13.85 (8.76%)

Zensar Technologies

768.20
03:29 PM | 12 JUL 2024
50.45 (7.03%)

Coforge

5,950.05
03:29 PM | 12 JUL 2024
386.65 (6.95%)
More from Top Gainers

Recommended For You

    More Recommendations

    Gold Prices

    • 24K
    • 22K
    Bangalore
    74,481.00218.00
    Chennai
    73,972.00-727.00
    Delhi
    74,771.00-218.00
    Kolkata
    73,972.00-218.00

    Fuel Price

    • Petrol
    • Diesel
    Bangalore
    102.86/L0.00
    Chennai
    100.76/L0.01
    Kolkata
    104.95/L0.00
    New Delhi
    94.72/L0.00
    OPEN IN APP
    HomeMarketsPremiumInstant LoanMint Shorts