SEBI’s “Unaffected Price”: A Shield Against Stock Market Rumors

SEBI’s “Unaffected Price”: Stock markets are all about information, but sometimes, the information flying around can be downright misleading. Rumors can cause major price swings, often far from a company’s actual performance. To combat this, India’s Securities and Exchange Board of India (SEBI) has introduced a new concept: the unaffected price.

What is the Unaffected Price?

The “unaffected price” of a stock is what the stock’s price would be if there were no sudden news or rumors influencing it. It’s the price you expect the stock to be based on its usual performance, without any extra excitement or panic caused by new information.

Let’s understand the concept of SEBI’s “Unaffected Price” by considering the practical example.

Imagine a Voltas company’s stock is normally trading around 1150 per share. Then, a rumor starts that the company might be bought by a bigger company, and the stock price jumps to 1250 because investors think the stock will be worth more after the buyout.

The “unaffected price” is the 1150, which is what the stock would likely be trading at if the rumor had never surfaced. This unaffected price helps investors understand the stock’s value based on regular market conditions, not temporary hype or fear.

How Does Unaffected Price Work?

SEBI’s solution is to identify an “unaffected price” for the stock. This price represents what the stock would likely be trading at if the rumor hadn’t surfaced. SEBI will require listed companies, especially large ones, to verify rumors that cause significant price movements.

• Verification Triggers: SEBI mandates that listed companies in the top 100 (as of June 1, 2024) address any rumors causing significant price fluctuations. This verification needs to happen within 24 hours.
• Calculating the Unaffected Price: SEBI proposes an adjusted volume-weighted average price (VWAP). This excludes price variations attributed to the rumor, offering a clearer picture of the stock’s intrinsic value.

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Why is Unaffected Price Important?

The unaffected price can have a ripple effect:

• Fairer Pricing: Mergers and Acquisitions (M&A) deals often use VWAP for pricing. With the unaffected price, the price won’t be inflated by rumors, leading to a fairer deal for both companies.
• Reduced Volatility: By addressing rumors promptly, companies can prevent excessive price swings, making the market more stable.
• Investor Confidence: Unaffected prices can help investors make informed decisions based on a company’s actual performance, not fleeting rumors.

SEBI’s initiative is a positive step towards a more transparent and rumor-resistant stock market. While the complete picture is yet to emerge, the “unaffected price” concept has the potential to create a fairer playing field for investors and businesses alike.

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