No circuit filter on the day of listing helps operators to push up prices.
A large number of penny stocks, which were suspended from trading by the Bombay Stock Exchange (BSE) due to non-compliance with the listing agreement and other issues, are rushing to get their stocks relisted. The recent spike in the market has encouraged them to opt for this.
In the past three months, when the stock market was on an upswing, 16 small companies relisted their stocks. And the promoters’ move paid off
For instance, Rajasthan-based mining and minerals company Pacific Industries’ share price was up 2,757 per cent on May 25, when it relisted after a period of six years. The volume generated was only 132 shares on that particular day.
Similarly, the share price of Ahmedabad-based chemical company Shri Chlochem rose 2,400 per cent on a measly volume of 100 shares on the first day when company was relisted after eight years.
Other stocks, which saw an abnormal price rise were food processing firm Madhur Industries (830 per cent), textile firm Binny (755 per cent), entertainment company Quantum Digital (701 per cent) and Pithampur Steel (664 per cent).
Market experts said that this sharp spike was due to the fact that there was no circuit filter on the stocks on the day of their relistings. Hence, market operators were able to jack up the prices with small volumes.
However, penny stocks weren’t the only ones affected. On June 16, the share price of Ajmera Realty & Infra India, a mid-cap stock, rose 253 per cent on BSE within a few hours of trading. The stock was suspended at Rs 47 in May this year as a demerger of its business was in the offing. On the first two days of listing, the price of the stock zoomed to Rs 200. In the next three trading sessions, the stock price fell 32 per cent.
The issue of massive price rise in penny stocks that relist at a huge premium is not new to BSE. The exchange had come under criticism after two penny stocks KGN Industries and Sylph Technologies rose nearly 1 lakh per cent in a single trading day on re-listing.
Market experts said these stocks were largely operator-driven. Many investors get lured by the sharp rise and then get stuck because trading in these stocks get suspended for long periods.
Almost 1,500 stocks have been suspended by the exchange in the last few years. In order to counter this menace, BSE had issued a public notice a couple of years ago proposing to delist over 650 companies from its official records because trading in these securities had been under suspension for three years or more. The move, however, was stalled by investor activists.
Recently, six such companies were suspended by the exchange due to issues related to non-compliance.