The trading suspension of Deccan Chronicle Holdings by the National Stock Exchange has put the focus on minority shareholders, who are unlikely to recover the money from their investments in the stock, unless it is listed again. When a company faces suspension from trading, minority shareholders have little respite, as the rules have no provisions to help them recover their money from errant firms.
“Shareholders have no options at all. They can’t even pledge suspended shares. Neither can Sebi (Securities and Exchange Board of India) help if investigation against the company is underway,” says Anish Ghoshal, partner at PDS and Associates, a Mumbai-based legal firm.
Investors wouldn’t be able to trade in Deccan Chronicle, suspended from the NSE owing to non-compliance with the listing agreement from January 23. That the stock is yet to be suspended on the BSE is hardly a source of relief to investors, as it is unlikely to find buyers. Today, Deccan shares were locked at a five per cent lower circuit of Rs 6.82, without a single buy order.
In the past two years, about 200 companies have been suspended from trading by stock exchanges. Deccan’s suspension has come under the spotlight, as the stock was more popular than those of many of the suspended companies.
About Rs 61,000 crore of shareholder money is stuck in 1,450 companies suspended since 2009, says Kishore Ostwal, chairman and managing director of CNI Research.
The chain of events in the run-up to NSE’s announcement of the trading suspension of Deccan raises a pertinent question: Should investors continue to bet on shares of companies in which a scandal has broken out? Analysts said investors should exit a stock at the slightest hint of trouble. “When the financial health of the company has been written off, why should anyone stay put? Exit and invest elsewhere to recover this loss,” said Arun Kejriwal of Mumbai-based investment consultancy KRIS. This is because as most suspended companies haven’t made it back to the bourses, investors in such stocks end up holding dud investments. They are tempted to buy afresh in such stocks, making a contrarian bet that they could end up holding ‘multi-baggers’ if the situation improves. The case of Satyam Computer, which was mired in an accounting scandal, can be cited as an example.
Ostwal said, “It made sense to exit the stock (Deccan Chronicle) when it was at Rs 100. Today, when it is trading at Rs 6, exiting would be like exiting at zero value. We don’t know when the circuit may open and investors get a better opportunity to exit.”
