SEBI’s Rule Leads to Heavy Selling Pressure in Micro-Cap Shares
On June 5th, Indian stock exchanges observed heavy selling pressure in micro-cap shares due to a rule introduced by the Securities and Exchange Board of India (SEBI). Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) increased their surveillance on companies with a market capitalization below INR 500 crores to prevent price manipulation and safeguard retail investors. SEBI introduced this rule to ensure that small and micro-cap companies do not become vulnerable to price manipulation, which could cause retail investors to lose their money.
Market Capitalization of 2000 Shares Below INR 500 Crores
Out of the 599 companies that witnessed a decrease in stock prices on Monday, 60 companies fell by 5% and reached the lower circuit. Nearly 119 shares remained unchanged, and 1,130 shares were in the green zone. The highest decline was seen in Indowind Energy, which fell by almost 23%, followed by Sah Polymers, which fell by 16%. Both these shares had witnessed a surge of more than 25% between March 28th and June 2nd. However, SEBI’s rule has now impacted their prices. More than 2,000 shares on BSE have a market capitalization of less than INR 500 crores. Out of these, nearly 1,600 shares saw a rise of 10-700% between March 28th and June 2nd, while 400 shares gave negative returns during this period.
SEBI’s Decision to Keep Certain Shares Outside the Framework
BSE and NSE informed the market about SEBI’s rule on Friday. As per the circular, SEBI and the exchanges’ joint meeting decided to keep companies with a market capitalization below INR 500 crores outside the ESM framework. However, government companies, PSU banks, and shares that are a part of derivatives were not kept outside the framework. The shares were included in the framework based on parameters such as high-low price variation and close-to-close price variation. These shares will be reviewed every three months, and only after fulfilling the criteria of volatility and price band will they be kept outside the framework.
Expert Opinion on SEBI’s Rule
Mukesh Kochhar, National Head (Wealth) of AUM Capital Market, stated that this rule is necessary for the benefit of investors as small investors tend to get stuck in penny stocks amidst the market’s volatility. On the other hand, Vijay Kumar, Chief Investment Strategist of GeoJit Financial Services, believes that many micro-cap shares show hyperactivity, and manipulation can be easily done in shares with low floating stock. He feels that SEBI’s decision is better as it will help prevent such manipulation.
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