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| Those with an eye for the quick buck better watch out. Especially if you are one of those small investors who don't have the wherewithal to fancy bigger stocks with better fundamentals or the patience to invest long-term. |
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| The BSE shifted several hundred scrips to the Z group - the trade-to-trade segment where every trade leads to delivery - with effect from September 10, 2003. |
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| Nearly 80 per cent of those which saw trading have crashed in a week's time. It was the sharp spurt in the prices of these second-line counters that prompted the BSE and NSE to tighten their surveillance on these counters. |
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| Was that a good decision? Most of the market players we spoke to agreed that it was the right decision and was along expected lines. |
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| "The decision was expected since most of these scrips had low liquidity and were showing unusual price movements," says Arun Kejriwal of Kejriwal Research & Investment Services. |
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| "It is a very good thing, in the sense that the exchanges are trying to protect the small-time investors who would have otherwise got caught in these counters. Most of these companies are fundamentally not good," he adds. |
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| In all, the BSE has shifted nearly 700 scrips to the Z group. This is probably the first time the exchange has taken such a drastic measure to keep tabs on market volatility. |
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| Following suit, the NSE also placed 135 securities under the trade-to-trade segment with effect from September 10, 2003. |
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| According to a BSE press release, there has been a sudden spurt in the trading of scrips which were either not being traded at all previously or had very thin volumes. Many of these companies were listed in the B2 and Z categories of stocks. |
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| The BSE also observed that the prices of some scrips had moved to higher levels with small quantities being traded. |
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| The release goes on to add that while some of the companies may have improved fundamentally and financially, there may be others which may not have seen any such improvement in their business activity to support the significant price rise. |
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| Exchanges put stocks in the Z category when companies violate listing norms, don't redress investors' grievances and fail to make demat arrangements with both the depositories. |
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| Under the trade-to-trade segment, each and every trade is settled either by the payment of funds or by the delivery of shares. |
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| This is unlike the rolling settlement where a trader has the option to square off positions within one trading session. |
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| Once a scrip is brought under the trade-to-trade segment, these securities are not available in the rolling segment with effect from that date. |
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| The measures are also meant to bring compulsory demat trading in such securities and to promote safety and efficiency in the capital markets. |
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| The results were almost immediate. Panic selling in most of these counters led to a crash, with a big majority of the B2 group stocks - which were shifted - hitting the lower circuit during the next trading session. |
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| Companies that have been transferred to the trade-to-trade segment on the BSE include Autoriders Finance (-35.33%), B S Appliances (-11.22%), Bajaj Plastics (-24.14%), Balaji Distilleries (-24.14%), Bell Ceramics (-9.68%), Birla VXL (-4.85%), BPL Engineering (-10.53%) and Core Healthcare (-15.27%). |
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| "I won't say that the list is complete and there are some companies which don't deserve to be in the list. But keeping in mind the overall picture, I would say that it is a good decision which will guard investors against getting trapped in dangerous counters," says Kejriwal. |
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| However, some have expressed concern that the decision to shift these scrips to the Z group would have a negative impact on the markets. |
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| "If you look back in time, when the Ketan Parekh scam broke out, the BSE had decided to ban short-selling. While the idea was to cushion the impact of the crash, it did not work that way eventually. This step, too, will most likely create panic in the markets," cautions Vijay Bhambwani, chief executive of personal investment advisory firm BSPLIndia.com. |
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| According to some market watchers, players who lost money in the Z group would look at their other portfolios to book profits to recover a part of their losses. "That's not true," counters Kejriwal. |
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| "In fact, it works the other way round. People - those who had lost money in front-line stocks - used to get into these small counters, hoping to make a killing. In any case, most of these stocks were trading below Rs 20 levels, which means the upsides were limited." |
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| Whatever be the case, trading in these counters has also taken a hit as investors stayed away. |
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| Bhambwani says that putting such a large number of scrips in the Z category could hurt market sentiment, especially when the equity markets are booming. |
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| "It might stem the tide for a few days, but overall there will be a fear psychosis. While it is common knowledge that most of these counters are operator-driven, by shutting exit routes one will accentuate the problem," warns Bhambwani. |
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Sandeep Shenoy, strategist at domestic securities firm Pioneer Intermediaries, disagrees with Bhambwani
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