RIL announced COA before the market opened yesterday. If all companies start doing this in advance, it will help investors stay invested and remove a reason to panic, Kamath said.
RIL announced COA before the market opened yesterday. If all companies start doing this in advance, it will help investors stay invested and remove a reason to panic, Kamath said.Zerodha's Nithin Kamath has praised Reliance Industries Ltd (RIL) for its declaration of cost of acquisition (COA) without any delay, ahead of corporate action (JFS demerger) on Thursday. The RIL stock went ex-date for demerger in the previous session. In a series of tweets, Kamath said the move might have helped in better price discovery and also ensured the buy average price was already adjusted on brokers' trading apps today.
"Ideally, companies should announce COA well in advance," he said while sharing a table that suggested the time taken by other organisations to report COA details.
The CEO of Zerodha said companies normally take time, even after ex-date to announce COA. "Without this, trading apps can't adjust the buy average price for holdings downward to account for the demerger. This increases the risk of a retail investor panicking & exiting after seeing an artificial loss," he said.
He said it was good that RIL announced COA before the market opened yesterday, adding that if companies start doing this well in advance, brokers can adjust the price and show the accurate P&L to investors even on the ex-date. It helps investors stay invested by removing a reason to panic.
To recall, Reliance Industries’ press release, ahead of Thursday's session, gave a formula for determination of cost of acquisition of equity shares of RIL and Reliance Strategic Investments (to be renamed as JFS).
""This communication is for the benefit of the shareholders and the company takes no express or implied liability in relation to this guidance," RIL said on Thursday.
Income Tax provisions states that the cost of acquisition in case of demerger will be net worth of the resulting company (RSIL or JFS) divided by the net worth of the demerged company (RIL). The formula stated apportion of de-merger cost of acquisition of equity shares of the RIL in the ratio of 4.68 for RSIL and 95.32 for RIL.
Centrum Broking said it used the standalone net worth of RIL of Rs 5 lakh crore and apportionment ratio of 4.68 per cent of RSIL to arrive at net worth of RSIL at Rs 23,500 crore.
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