SEBI’s Special Call Auction Mechanism: Impact on Unlisted Shares
Understanding SEBI’s Special Call Auction Mechanism
The Securities and Exchange Board of India (SEBI) has introduced a ‘Special Call Auction Mechanism’ aimed at improving price discovery for the scrips of listed Investment Companies and Investment Holding Companies. This mechanism addresses the issue of these companies’ stocks being traded infrequently and often at prices significantly lower than their disclosed book values. These companies typically have no daily operations and primarily invest in various asset classes, including the scrips of other listed companies. The discrepancy between the market price and the book value adversely affects liquidity, fair price discovery, and investor interest.
Starting in October 2024, SEBI will conduct special auctions without price limits, based on the most recent audited financial statements of these companies. This means the stocks can be bought and sold at any price during these auctions, which should help establish a fair market value. SEBI has set clear rules to identify which companies can participate, ensuring that only those listed for at least one year and not suspended from trading are included. This process aims to bring transparency and fairness to how these stocks are priced.
Impact on Unlisted Companies: Bridging the Valuation Gap
The introduction of SEBI’s Special Call Auction Mechanism is poised to have significant implications on unlisted companies like Elcid Investments and Taparia Tools. This mechanism can serve as a benchmark for accurate price discovery and fair valuation. These companies often suffer from extreme valuation gaps due to infrequent trading and lack of market visibility.
Spotlight on Elcid Investments and Taparia Tools
About Elcid Investment
Elcid Investment Ltd is a company that makes money by investing in various businesses. Its main investments include significant holdings in companies like Asian Paints Ltd, One 97 Communications, Resins and Plastics Ltd, and Brainbees Solutions Pvt Ltd. They manage these investments carefully to deal with the ups and downs of the stock market, using expert advisors to reduce risks. Operating under a straightforward business model focused on investing, Elcid Investment Ltd aims to increase its profits as India’s economy grows. It’s listed on the BSE (Bombay Stock Exchange), ensuring it follows strict rules to protect its investors and manage its operations effectively.
The share price of Elcid Investments: (as of 28.06.2024)
- On BSE: ₹3.53.
- On our platform Altius Investech: ₹195,000.
About Taparia Tools
Taparia Tools Limited (TTL), founded in 1965 and headquartered in Nashik, Maharashtra, specializes in manufacturing hand tools. The company’s extensive product range includes adjusting spanners, pliers, screwdrivers, socket sets, hammers, and more. TTL pioneered its operations in 1969 through a technical partnership with a Swedish company, ensuring high precision and quality in its manufacturing processes ever since.
The share price of Taparia Tools: (as of 28.06.2024)
- On NSE: ₹4.27.
- On our platform Altius Investech: ₹3,499.
This significant difference shows the problems caused by infrequent trading and inaccurate price discovery.
Effect of SEBI’s Special Call Auction Mechanism on Elcid Investments and Taparia Tools
The Special Call Auction Mechanism, starting in October 2024, will be done without price bands and will use the latest audited financial statements. This is expected to have a big impact on both Elcid Investments and Taparia Tools by promoting fair price discovery and improving liquidity.
For both companies, Elcid Investments and Taparia Tools, this mechanism can bridge the gap between the market price and the book value, facilitating more accurate price discovery. By ensuring that their scrips are traded more frequently and at prices reflective of their true value, investors will benefit from a more transparent and efficient market. This change can lead to increased investor confidence and potentially higher market prices, better aligning with the companies’ book values. Consequently, investors will gain a clearer picture of each company’s worth, enabling them to make more informed investment decisions.
Note: SEBI has provided clear guidelines for identifying Investment Companies (ICs) or Investment Holding Companies (IHCs) eligible for the special call auction. These companies must be identified based on uniform industry classifications provided by stock exchanges. Additionally, their scrips must have been listed and available for trading for at least one year and should not be suspended from trading. This transparent process ensures that only the most eligible companies are included in the auction. If Elcid Investments and Taparia Tools meet these criteria, then only they will be eligible to participate in the Special Call Auction Mechanism introduced by SEBI.
Conclusion
SEBI’s introduction of the Special Call Auction Mechanism represents a significant step towards improving the price discovery process for listed ICs and IHCs. For companies like Elcid Investments and Taparia Tools, this mechanism offers the potential for more accurate market valuation, enhanced liquidity, and greater investor interest. By addressing the current challenges of infrequent trading and significant price disparities, SEBI aims to create a more transparent and fair market environment for all stakeholders.
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