Special call auctions to aid holding companies price discovery, narrow discounts

India IPO

Updated Jun 22, 2024

Sebi has introduced special call auctions to aid in the price discovery of holding companies, aiming to narrow the significant discounts seen between their market values and book values. Stocks such as Kalyani Investment currently trade at discounts ranging from 60% to 85% to their book values.

Special call auctions to aid holding companies price discovery, narrow discounts

The initiative by the Securities and Exchange Board of India (Sebi) involves conducting special call auctions without price bands, starting with the first auction scheduled for October.

This move is expected to bring about a more accurate valuation of investment holding companies based on their latest audited financial statements.

Companies like Kalyani Investment, Bombay Burmah, Pilani Investment, Kama Holding, Vardhman Holdings, Summit Securities, and Maharashtra Scooters are particularly affected, trading at significant discounts to their book values.

Retail investors often overlook these companies, which hold substantial investments in listed entities, making them hidden opportunities. Sunil Damania, Chief Investment Officer at MojoPMS, suggests that while the auctions are set to be annual, holding them quarterly, synchronized with companies' quarterly disclosures, could enhance their efficacy.

For instance, Kalyani Investment, part of the Pune-based Kalyani Group, trades at an 84% discount to its book value, holding notable stakes in Hikal, Bharat Forge, and BF Utilities.

Similarly, The Bombay Burmah Trading Corp holds substantial stakes in Bombay Dyeing and Britannia Industries, valued significantly higher than its market capitalization.

Anand James, Chief Market Strategist at Geojit Financial Services, notes that while prominent holding companies benefit from adequate participation and trader interest, those with liquidity issues could particularly benefit from the call auction method.

Under Sebi's framework, holding companies will be classified based on uniform industry criteria set by stock exchanges, ensuring transparency and adherence to specific listing requirements.

Exchanges will announce auctions with a 14-day notice to the market, aligning with the regulatory framework aimed at enhancing transparency and market efficiency.

Despite the potential benefits, Damania highlights liquidity challenges faced by most investment companies due to limited float, which could impact the effectiveness of price discovery when the system launches in October 2024.