Regulatory Tweak, Discount To Intrinsic Value Aid Holding Companies' Stellar Rally

Indian holding companies were in focus with a stellar rally on Monday, after a recent tweak in price discovery by the stock market regulator and the discount at which they are trading.

The Securities and Exchange Board of India introduced a special call auction last week with no price bands for the price discovery of investment holding companies.

This was done after SEBI observed that the scrips of the listed investment companies and listed investment holding companies were being traded infrequently and at a lower price than the book value disclosed by these companies in its recent audited financial statements.

The session's surge today also comes while most holding companies are trading at a discount to the intrinsic value of their holdings.

The sustainability of the price that is discovered through SEBI's tweak will be in question, according to Deven Choksey, managing director of DRChoksey Investment Managers Pvt. This is because of the low liquidity of the holding company, he said.

There is a larger question of how to increase the float in the market, so the undue premium gets adjusted, Choksey said. "That should be the question, going forward."

Nearly 70 listed holding companies—entities that own other companies and their assets but doesn't engage in the day-to-day business—trade in the Indian stock market.

Shares of Kalyani Investments Co. and Vardhman Holdings Ltd., among others, were locked in the 20% upper circuit, while other stocks like Bombay Burmah Trading Corp., Maharashtra Scooters Ltd., and Zuari Industries Ltd. rose over 10% during the session. This compares with the benchmark Nifty 50's intraday high of 0.24%.

The rally in the space had begun since the beginning of the month. The shares have surged up to 30% so far—Kalyani Investments rose over 30.7%, while Vardhman Holdings and Maharashtra Scooters surged over 15% during the month.