What does the new SEBI order mean for holding company stocks?

Market regulator SEBI has stepped in to iron out the kinks of investing in holding company stocks. Raising red flags on holding companies' steep discounts to their underlying equity investments, the regulator announced on June 21, 2024 that it will introduce a mechanism of special call auctions to allow fair price discovery of holding company stocks. What it means In India, holding company stocks can be seen trading at sharp discounts of 70-80 per cent to their book value (underlying investments). The steep undervaluation is on account of several drawbacks that come with investing in holding companies like high taxation and illiquid nature of underlying investments. The reasons are explained in detail in this story . Such sharp discounts have deterred investors from investing in holding company stocks, which can be ascertained from their low trading volumes. In SEBI's words, the sharp variance is 'adversely affecting liquidity, fair price discovery and overall interest of investors in such companies'. Hence, realising the illiquidity of holding company stocks, the regulator is seeking to narrow their wide discounts to increase investor participation and unlock value. For this, it has mandated that stock exchanges conduct annual special call auctions without any price bands (upper and lower circuits) for holding companies from October, 2024. For the uninitiated, a call auction is a process where buyers and sellers submit their prices for a stock, and trades happen at a set time based on the best prices that match up. Call auctions are held for illiquid stocks, providing them an organised and controlled trading environment to enable price discovery with limited volatility. The announcement led to a sharp outperformance of holding company stocks on Monday, June 24 as investors hoped to offload the shares during the special call session at higher prices. See table title