Market price is not always the fair price. Discuss with reference to valuation methods used in recent strategic disinvestments.

Market price is what a share trades at on a given day. Fair (intrinsic) value is what a firm's assets and earnings justify. When the CCEA approved the strategic sale of 60.72% of IDBI Bank on 14 October 2026, it set aside the market price and compared the bids with fair value [1]. That decision shows how far the two can differ.

Why market price can mislead

• Thin free float: GoI and LIC together held over 94% [2]. Few shares traded, so small trades moved the price a lot.
• Speculation: The share was ₹42.40 before the Expression of Interest (Oct 2022) and ₹108.12 before the bids (Jan 2026). During the valuation period it ranged from ₹118.38 to ₹61.01 [1].
• News-driven moves: The price fell below ₹75 after the round-1 bids failed. That reflected deal news, not the bank's fundamentals [1].

Valuation methods used instead

• Relative valuation (market multiple method): IDBI was compared with all PSBs using their 31 March 2026 accounts [1].
• Asset valuation method: Tangible and intangible assets, including land, minus liabilities [1].
• Benchmark: The average of two independent valuations came to ₹75.99. The winning bid of ₹81 was above it [1].
• Competitive sealed bidding: A reserve price of ₹94.42 led to the rejection of low bids in round 1. RBI's fit-and-proper test and MHA security clearance screened the bidders [1].

Market price (disregarded) → 2 independent valuations
   → Benchmark ₹75.99 → Sealed best-offer bids → ₹81/share

Fig: Price discovery in the IDBI sale

Limits of the fair-value route

• Opacity: Only the average is public, not the valuation reports. Outsiders cannot test assumptions such as how land was valued [1].
• Shifting floor: The deal closed about 14% below the round-1 reserve price, which invites the charge that the bank was sold too cheaply [1].
• Time cost: Approval came four years after the EoI, across two bidding rounds [1].

Where free float is thin and prices react to deal news, market price is one signal, not the final answer. The Strategic Disinvestment Policy 2021 keeps only a bare-minimum public presence in banking [3]. To make such sales credible, DIPAM could publish the valuation reports after the deal closes and announce in advance how the reserve price will be reset if a round fails. Sound valuation combined with transparency can get the public exchequer the best value.