The monthly turnover on BSE and NSE in these stocks has plummeted sharply from over Rs 6,000 crore in January 2008 to Rs 2,950 crore in March 2008 and to Rs 562 crore in June 2008.
The list of illiquid stocks has been drawn up as per the direction of the Securities and Exchange Board of India (Sebi) based on criteria agreed upon between the two bourses and the market regulator.
The exchanges provide the list of illiquid stocks to the trading members on a monthly basis and advise them to exercise additional due diligence while trading in these securities either on own account or on behalf of their clients.
The BSE has come out with a list of 1,585 scrips and NSE a list of 304 shares as illiquid securities. Some of the shares are listed on both the exchanges.
Though 1,585 stocks account for 59 per cent of the total stocks traded on BSE, their share is only 3 per cent of the market capitalisation of BSE.
Generally, the stocks with strong promoters holding are illiquid as the promoters do not play in the market with their holdings. Of the 1,585 illiquid stocks, almost 56 per cent, or 886 stocks have promoter holding of over 50 per cent, 525 have promoters holding between 25 and 50 per cent and 174 have promoters holding of below 25 per cent.
The BSE list reveals that a few stocks such as Koutons Retails, B L Kashyap, Madhucon Projects, Shoppers Stop and Ess Dee Aluminium had comfortably high volumes some time ago when these stocks were in the news. Similarly, listed subsidiaries of State Bank of India (SBI) had sufficient liquidity when the news of merger with SBI was in the air.
Also on the illiquid list are stocks of some multinational companies, which are currently in buyback mode. The promoters of Gillette India, Blue Dart Express and Gokaldas Exports are in the process of delisting their companies. The illiquid list also includes prominent companies such as Godfrey Phillips India, Crisil, Glaxo SmithKline Consumer etc.
Liquidity refers to the ease with which you can buy or sell a stock at or near the current market price. For an illiquid stock, market price has little meaning.
Dealings in illiquid stocks are risky as it increases the impact cost. One should only buy such a stock if one is comfortable with holding it for several years.
