Beware of these 774 rising penny stocks; stock exchanges up vigil
Mumbai: Stock exchanges have stepped up vigil on movements of smaller and penny stocks in the wake of the sharp surge in their prices. The Bombay Stock Exchange and the National Stock Exchange of India have included 774 lesser-known companies under a graded surveillance measures framework, which is aimed at checking whether the recent advancement in their stock prices was commensurate with their financial health and fundamentals.
“The companies that have been shortlisted under the graded surveillance measures are suspect in nature, with price movement not supported by fundamentals. The tone of the circular shows the regulator is concerned and wants to prevent small investors from trading in penny stocks,“ said Alok Churiwala, MD, Churiwala Securities.
According to exchanges, stocks whose prices rise abnormally without earnings, book value, fixed assets, net worth or price-to-earnings multiple justifying the movement will be subject to heightened scrutiny. These restrictions, which are in addition to existing surveillance steps, include placing or continuing them in trade-to-trade segment, trading being restricted to once a week or month, freezing stock price on upper side and additional money as surveillance deposit.
Action on companies shortlisted under the framework will be initiated from March 14. The exchanges have advised exercising additional due diligence while trading in these stocks and said the stocks put under graded surveillance will be periodically reviewed and published by the exchanges in a coordinated manner.
Mid and small-cap stocks have run up significantly from their post demonetisation lows to near record levels. So far this year, the BSE MidCap index has gained 11.4% and the BSE SmallCap index has gained 13%. In comparison, benchmark Sensex has gained 8.3%. With midand small-cap stocks already having run up in the last three years, several retail investors have shifted focus to penny stocks, some of which have more than doubled in the last three months. In such rallies, retail investors, in an attempt to play the momentum, often fall prey to illiquid stocks, brokers said.
“When market rises there is a tendency to get interested in shares which are comparatively cheaper than the rest of the market,“ said Arun Kejriwal, founder, Kris Research.
Some of the shortlisted securities under graded surveillance measures include Aashee Infotech, Bijlee Textiles, Chennai Ferrous Industries, Yashraj Containeurs, Tulip Star Hotels, Triveni Enterprises, Sharp India, Nagarjuna Agri Tech and Indo Cotspin.
“The companies that have been shortlisted under the graded surveillance measures are suspect in nature, with price movement not supported by fundamentals. The tone of the circular shows the regulator is concerned and wants to prevent small investors from trading in penny stocks,“ said Alok Churiwala, MD, Churiwala Securities.
According to exchanges, stocks whose prices rise abnormally without earnings, book value, fixed assets, net worth or price-to-earnings multiple justifying the movement will be subject to heightened scrutiny. These restrictions, which are in addition to existing surveillance steps, include placing or continuing them in trade-to-trade segment, trading being restricted to once a week or month, freezing stock price on upper side and additional money as surveillance deposit.
Action on companies shortlisted under the framework will be initiated from March 14. The exchanges have advised exercising additional due diligence while trading in these stocks and said the stocks put under graded surveillance will be periodically reviewed and published by the exchanges in a coordinated manner.
Mid and small-cap stocks have run up significantly from their post demonetisation lows to near record levels. So far this year, the BSE MidCap index has gained 11.4% and the BSE SmallCap index has gained 13%. In comparison, benchmark Sensex has gained 8.3%. With midand small-cap stocks already having run up in the last three years, several retail investors have shifted focus to penny stocks, some of which have more than doubled in the last three months. In such rallies, retail investors, in an attempt to play the momentum, often fall prey to illiquid stocks, brokers said.
“When market rises there is a tendency to get interested in shares which are comparatively cheaper than the rest of the market,“ said Arun Kejriwal, founder, Kris Research.
Some of the shortlisted securities under graded surveillance measures include Aashee Infotech, Bijlee Textiles, Chennai Ferrous Industries, Yashraj Containeurs, Tulip Star Hotels, Triveni Enterprises, Sharp India, Nagarjuna Agri Tech and Indo Cotspin.
