Explainer: Why Elcid Investment shares zoomed in one day

Why did shares of Elcid Investments come into the limelight on Tuesday? 

Shares of the investment company rose a staggering 6.7 million per cent to Rs 2,36,250 apiece, surpassing MRF as the highest-priced stock in India in absolute terms. This was after a special call auction “with no price bands” was held for the stock that last traded at Rs 3.5 per share, and has a book value of more than Rs 4 lakh per share. 

Why were the shares languishing at such a low price all along? 

Elcid Investment’s major source of revenue is interest and dividend earned on its significant investment portfolio, which categorizes it as a holding company. Typically, shares of holding companies trade at substantial discounts to their fair value, and Elcid was not an exception until recently. It has historically traded at an even steeper discount of almost 100 per cent to its book value. 

• Also read: Elcid Investments becomes country’s most expensive stock after special auction

“This deep undervaluation discouraged shareholders from selling at such levels, resulting in limited market liquidity and a persistent gap between the share price and its fair value,” said Raj Gaikar, Research Analyst, SAMCO Securities. There was also the price-band restriction of 5 per cent per day, which would have curbed share price movement. 

Concerns about performance-related declines haven’t impacted Elcid, since it is just a holding company without much business operations, so decline in revenues or market share does not arise in this case, Gaikar said.

What prompted the exchanges to hold a special call on Tuesday? 

A 2024 SEBI circular had proposed a new mechanism to improve the price discovery of investment companies (ICs) and investment holding companies (IHCs). ICs primarily invest in stocks, mutual funds, debentures, while IHCs hold most of their assets in group companies. Both ICs and IHCs have no other active line of operation. Investments are their primary assets and also their source of income.

“SEBI noticed that many ICs and IHCs are trading significantly below their book value. To help improve liquidity, fair price discovery, and overall investor interest in the stocks of such companies, SEBI introduced a framework for “special call auction with no price bands” for these stocks,” said a note by Zerodha. 

Elcid share price stayed steady on Wednesday. Will they move further? 

Even at ₹2.36 lakh per share, Elcid trades at a price-to-book multiple of just 0.38. While other holding companies generally trade at discounts to their book values, they have been relatively less undervalued due to better liquidity. The promoters of Asian Paints hold a 75 per cent stake in Elcid, while other major shareholders include Hydra Trading (9.04 per cent) and 3A Capital Services (3.34 per cent), data for the quarter ended September showed. “Elcid Investments has limited free float, which makes true price discovery challenging. Until more liquidity flows into the stock, the scope for accurate price discovery remains limited. Enough trading volume will be key for its true price discovery,” said Gaikar.

Was there a special auction for other holdcos as well? 

The special auction was held for several holdcos, including Pilani Investments, Kalyani Investments, TVS Holdings and Maharashtra Scooters. The share price of most of the companies did not see a huge movement. Mask Investment, for instance, surged 47 per cent on October 28, after previously trading at a 79 per cent discount to its book value.

How does the special call auction work?

The special call auction window will be provided once a year only. The exchange must give at least 14 days advance notice about stocks that will open for the special call auction. The special call auction will be considered successful if at least five unique buyers and sellers participate in it. If price discovery is not successful on the first day, the auction will continue on subsequent days until price discovery is achieved.