What Is the Special Auction That Made Elcid Investments India’s Priciest Stock?

In an unprecedented rise, Elcid Investments, a little-known smallcap stock, skyrocketed to become India’s most expensive stock. A special call auction conducted by SEBI, which had no price bands, enabled an astonishing 6.7 million percent surge, elevating its share price from ₹3.53 to ₹2,48,062.50 on October 31, 2024, at 11:23 AM. 

This development surpassed even industry giant MRF, as Elcid took the top spot in absolute stock value, marking a historic moment on Dalal Street. But what prompted this dramatic rise, and what is the significance of SEBI’s special auction framework?

SEBI’s Special Auction: A Push for Fair Price Discovery

In June 2024, SEBI introduced a special mechanism to improve price discovery for Investment Companies (ICs) and Investment Holding Companies (IHCs). Many ICs and IHCs were trading well below their book values, resulting in undervaluation. 

To address this, SEBI introduced a “special call auction with no price bands” specifically for ICs and IHCs. This allows for an unrestricted bidding session, encouraging a market-driven price discovery that better reflects a company’s true value.

This auction framework applies only to companies with a minimum 1-year listing on recognised exchanges, holding at least 50% of their assets as investments in other listed entities. 

These companies must also show that their 6-month Volume Weighted Average Price (VWAP) is less than 50% of their book value, based on the listed stocks they hold. Elcid Investments, as an IHC, perfectly fit this profile, and the special auction led to a recalibration of its stock value.

The Remarkable Rise of Elcid Investments

Elcid Investments, classified as a Non-Banking Financial Company (NBFC), derives most of its income from dividends earned on its significant investments in large corporations, including Asian Paints. With over ₹11,000 crore in assets and a market capitalisation of ₹4,725 crore, the company’s shares had remained undervalued for years, primarily due to limited trading and the lack of a structured price discovery mechanism.

Before SEBI’s intervention, shares of Elcid traded at a modest ₹3.53 per share. However, the special auction set a new benchmark, sending Elcid’s stock price to an astonishing ₹2,36,250 in one day. This price rise was monumental, highlighting the potential of SEBI’s new framework in uncovering the hidden value of IHCs and ICs. 

A Ripple Effect on Investment Companies

The SEBI circular provided a much-needed boost for the market’s undervalued segment of ICs and IHCs. By allowing unrestricted price discovery, SEBI has set a precedent for other investment companies trading below their book value. 

ICs primarily invest in assets like stocks, mutual funds, and debentures, while IHCs typically invest in group companies, both relying on investment gains as their primary income. This circular aims to increase liquidity, enhance fair valuation, and, importantly, boost investor confidence in these often-overlooked sectors.

Conclusion

SEBI’s approach to addressing undervaluation has had a substantial impact on Elcid Investments, setting a precedent for ICs and IHCs on the market. The regulatory move not only boosted Elcid’s value but also ignited interest in the potential of investment firms, transforming how the market perceives and values these companies.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.