August 26, 2016

How long does it take to discover Welspun India’s new worth?

Graphic: Naveen Kumar Saini/MintIn four trading sessions, Welspun India’s market valuation came down to Rs5,700. If there were no circuit filters, we would have known this within minutes on Monday

According to some market experts, there should no curbs on price discovery at all. For instance, when Ramalinga Raju spilled the beans about the fraud at Satyam Computer Services Ltd on 7 January 2009, within minutes, the stock lost two-thirds of its value and traded at Rs.60 per share; by the end of the day’s session, it had fallen to Rs.40. As it turns out, the stock largely traded in the Rs.40-60 band for the next few months, and Tech Mahindra Ltd ended up buying it for Rs.58 per share.

But regardless of whether the markets get their valuations right or wrong, circuit filters prevent investors from exiting positions during the most desperate times. For this reason alone, Sebi should consider an alternative to the existing system.


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