RBI Has Withdrawn All FDI Pricing Guidelines
The operating guidelines until a few years back were based on pricing details as arrived at by erstwhile CCI guidelines which was based on historical financials, that was later changed to future based Discounted Free Cash Flow (DFCF) method in 2010. However, since then there has been controversy regarding the issue of ‘call’ and ‘put’ options and for such options, the exit pricing was recently linked to return on equity.
The new rules would see an attempt to provide more flexibility to investors involved in the deal and focused towards commercial aspect of transactions. It is interesting to see how new rules would be framed. In our view, valuation approach and method should be kept open to suit the market, company and transaction.