Stock zooms 71 per cent in just five days as exchanges revise circuit filter limit.
SKS Microfinance is suddenly having a dream run on the stock exchanges, zooming 71 per cent in just five trading sessions.
Bucking the broader market trend on Tuesday, shares of the country’s largest micro lender spurted 8.3 per cent to Rs 587 on the Bombay Stock Exchange. On the National Stock Exchange, it rose 9.2 per cent to close at Rs 593. The respective benchmark indices, Sensex and Nifty, fell 1.6 per cent.
The immediate trigger is the draft Micro Financial Sector (Development and Regulation) Bill, which seeks to compel all micro finance institutions to be registered with the Reserve Bank of India, ending the uncertainty in this regard.
What also helped was the exchanges’ decision to revise the circuit filter of SKS from five per cent to 20 per cent on July 6, the day the news of the draft norms on the microfinance sector were out. This saw the stock rise 40 per cent in just two trading days, on July 7 and July 8, after which the circuit filter of the stock was revised to 10 per cent yesterday.
Circuit limits mean a stock cannot move beyond that particular price in a single trading session. Under normal circumstances, shares attract a circuit limit of 20 per cent.
When exchanges observe unusual price movement, they put shares under survelliance and lower the circuit to 10 or five per cent.
When asked, BSE said, “SKS is listed on both BSE and NSE. Periodic revision of circuit filters is done based on the objective criteria jointly decided by BSE and NSE in consultation with the Securities and Exchange Board of India (Sebi). Further, bi-monthly review of circuit filters is a routine activity, wherein a review for all scrips is carried out, based on objective criteria.”
An NSE source said, “It is a pre-existing objective criterion that has been jointly decided by BSE, NSE and Sebi.”
SPECULATIVE
While 10-15 million shares were traded every day on both the exchanges in recent days, delivery-based volumes were poor. Tuesday, just over six per cent on the BSE and nine per cent on the NSE were marked for delivery, showing highly speculative positions in the counter.
“Fundamentally, the sharp rise of SKS and current valuations are not justified. The price to book value of the stock is 2.2. The business of the company is to earn interest and many other non-banking finance company stocks are available cheap,” said S P Tulsian, independent equity advisor.
According to Deven Choksey, managing director of K R Choksey Shares and Securities, the implications of the proposed Bill are yet to be clearly understood by the market.
“Micro finance companies will find it difficult to operate in the near term. Most companies would not be able to charge high interest rates, as they will be regulated. More players will come in, so while volumes will increase, borrowers' dependence on a single company will reduce,” said Choksey.
The SKS stock has been highly volatile, amid several controversies around the company and the sector. In just a month after listing, the stock rose to touch a lifetime high of Rs 1,490 on the BSE in August 2010 (a large number of top company officials sold their stock options soon after listing). The issue price was set at Rs 985 per share. On May 10, it fell to a low of Rs 262, after which it was first put under 10 per cent circuit limit.
On May 13, the circuit filter of SKS was again revised to five per cent.
Former Sebi executive director, Sandeep Parekh, said there should be complete transparency in applying the circuit filter. A notice should be issued well in advance. In November 2010, the exchanges published rules for putting scrips under surveillance.
