Additional trading curbs on cos with m-cap of Rs 1000 cr, clarifies BSE

Experts say the impact of the circular less than feared earlier

BSE on Wednesday clarified that the additional curbs will only apply to securities exclusively listed on its platform with market cap of less than Rs 1,000 crore. Further, it will cover only scrips that are part of X, XT, Z, ZP, ZY and Y group and quote at more than Rs 10 per share.

The exchange in a circular on Monday had announced a new surveillance framework aimed at curbing excessive speculation. Under this, the exchange has capped the upside and the downside for a stock during a particular time period.

The directive coincided with a decline in the small and midcap stock, stoking fears that investors and traders were panic selling on account of the circular. However, the latest circular has helped assuage fears. Experts say the curbs will apply on only a select group of stocks.

“The new pricing framework will impact just a handful of stocks which are exclusively listed on BSE. The fears that it has triggered a selloff in the market are unfounded,” said Abhilash Pagaria, Assistant Vice President at Edelweiss Alternative Research.

After BSE’s clarification, the market breadth saw an improvement. During the start of the trade, the advance-decline ratio stood at 1:6, which later improved to 1:2.

Sharp swings will be restricted in stocks that are subject to the new pricing framework. For instance, a particular scrip can go up a maximum of 6 times in 6 months, 12 times in a year and 20 times in two years.

Experts said the circular will help curb manipulative activity in microcaps.

"This is a timely initiative to curb excessive speculative activity. Many stocks in this segment have low liquidity and, therefore, are capable of being manipulated by a group of traders. In the present exuberant state of the market, manipulation is easy and appears to be happening. Therefore, this initiative from the BSE is appropriate from the perspective of market integrity," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Some believe the circular could have wider repercussions.

“The short-term impact of the circular will lead to sell off in small- and mid-cap stocks which have been evident in the past 2-3 trading sessions. This will not be limited to just the exclusively listed stocks on BSE but to all stocks as it creates panic among investors,” said Ashish Chaturmohta, Director Research, Sanctum Wealth Management.