In a latest development, BSE has launched a surveillance framework for certain midcap and smallcap stocks. The Add-on Price Band Framework, as clarified by BSE, will only be applicable on stocks with a market capitalisation of less than ₹1,000 crore in order to curb the volatility in the broader markets. It has come out with a list of 31 such stocks for the same and will come into effect from August 23.
These will also be used on securities in groups -- X, XT, Z, ZP, ZY, and Y, as per the BSE press release.
Here's all you need to know:
These stocks will be subjected to additional price limits with respect to various periods like weekly, monthly, and quarterly over the daily price bands already in place.
BSE further informed that the stocks will be placed under this measure for a minimum of 30 days and will be eligible to move out if it does not qualify the provisions of the framework thereafter.
A review for the inclusion and exclusion of stocks under this framework will be carried out on a monthly basis.
As per BSE, “Once the security reaches the respective price limit of a period, trading shall be allowed only within the respective prescribed price range and the same shall not be revised till the beginning of the next cycle i.e. next Week/Month/Quarter wherein new price limits shall be computed for the respective periods.”
Stocks that have rallied over 6 times their reference price in the six months, soared over 12 times in a year, surged over 20 times in two years and jumped over 30 times in three years will come under this surveillance measure.
BSE also noted, “the final upper daily price band shall be the minimum of all individual upper price band limits and the final lower daily price band shall be the maximum of all individual lower price band limits.”
"BSE's new surveillance framework with add-on price bands for specified stocks listed exclusively on the BSE is a timely initiative to curb excessive speculative activity in these stocks. It is a fact that there is froth in the mid and small-cap space. 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.
Stocks under the framework
Anjani Foods, Ashiana Agro Industries, Assam Entrade, Available Finance, AVI Polymers, B&A Packaging India, Cosmo Ferrites, Flomic Global Logistics, Garware Synthetics, Gita Renewable Energy, Gopala Polyplast, Halder Venture, Hazoor Multi Projects, IEL, Jaykay Enterprises, LWS Knitwear, Master Trust, One Global Service Provider, Pacheli Industrial Finance, Pan Electronics India, Pooja Entertainment and Films, S&T Corporation, Sangam Renewables, Saraswati Commercial India, Sarthak Industries, SC Agrotech, Shree Worstex, Shri Bajrang Alliance, Siel Financial Services, Svarnim Trade Udyog, and Texel Industries.
How does it impact investors?
After the launch of this framework, there will be a limit on the rise in share prices of the stocks which come under this. However, experts argue that this measure is to safeguard the investment and minimise the risk of fraud and insider trading. Smallcap stocks tend to rise high and then fall even more, and since this measure caps the rise in such stocks, the decline will also be measured.
Broader markets have generally been more volatile and this framework seeks to help investors by curbing the same. Even though it may not be great news for smaller stocks, the aim is to safeguard the interests of investors.