Regulatory tweak fuels 70,000-fold rally in Eclid Investments' stock

By Chiranjivi Chakraborty 

Shares of a little-known investment and financial services firm in India soared 70,000-fold this week in one of the biggest moves globally, thanks to a rule tweak by the securities regulator. 

Elcid Investments Ltd.’s thinly-traded shares jumped to Rs 1,61,023 Monday from Rs 3.53 Friday, dwarfing rallies seen in several penny stocks during the meme stock craze in the US in 2021. The stock has climbed another 54 per cent since then to Rs 2,48,062.50 on the BSE Ltd.’s stock exchange.

 

The Mumbai-based company was part of a special price discovery exercise conducted by the stock exchange on Monday. It was undertaken after the Securities and Exchange Board of India in June introduced a mechanism for thinly-traded holding companies so that they could be priced closer to their book value.

 

The surge made Elcid India’s costliest stock in absolute terms, surpassing MRF Ltd., which is trading at around Rs 1,22,348. Even so, Elcid shares remain below their book value of Rs 4,06,241.58 as of March 31. 

The astounding surge in Elcid’s stock is even bigger than similar freak rallies seen globally in the past. In 2011, now private Gateway Industries & Associates LLC’s stock rallied 18,800 per cent in a day, while some penny stocks in New York were seeing daily gains of at least 9,900 per cent at the height of retail investor fueled craze in 2021.

 

In India, Elcid’s spectacular gains are an aberration in a market where the securities regulator caps daily price movements at 20 per cent for stocks that do not have derivatives contracts. The limit, however, does not apply to the special auction. 

 

The wide disparity in the market price and book value of such companies is affecting fair price discovery and the overall interest of investors in such companies, the regulator had said in a circular in June. 

 

Incidentally, the discovered price for Elcid’s stock through the special call-auction is similar to the floor price offered by its founders in a failed attempt to take the company private in 2022. The founders, who own a 75 per cent stake in the company, could not get enough minority shareholders to tender shares in the delisting offer.