New BSE Circular – 31 Small cap stocks list – Should you exit from Midcap and small cap stocks and mutual funds now?
If you are investing in Midcap or small stocks, you would have seen this segment has been falling in the last few days. You would have observed midcap or small cap mutual funds NAV has been falling recently. When covid-19 pandemic did not hurt stock markets, this BSE Circular released on Monday creating some panic. BSE circular is about surveillance measure which would impact Midcap and small cap stocks; hence these two segments have been falling in the last 3 days. Should you exit mid cap or small cap stocks now? If you are investing in midcap or small cap mutual funds, what should you do?
What are Surveillance measures of BSE or NSE?
Generally, stock exchanges (NSE and BSE) would put certain stocks under surveillance measures which shows unusual activities. This is nothing to do about fundamentals. But basically, suspicious change in volume or price in short time.
There is list of surveillance measures which stock exchanges adopts like implementing circuit filters, Graded Surveillance measures (GSM), Additional Surveillance measures (ASM) etc.,
What is this new BSE circular on surveillance measure?
Currently, BSE has circuit filters (upper or lower circuits) for all stocks which would be in the range of 5% to 20%. This is one of the surveillance measures already implemented.
However, BSE new rule / circular released on Monday states that another circuit (add-on price band) would be applicable to a larger period. This limit would be based on current circuit limit categorized into weekly, monthly and quarterly.
Let me explain with an example. Company X is trading at Rs 50 per share and has 20% circuit. In current scenario, it can trade between 40-60. However, as per new BSE circular, the add-on price band would be applied which would be:
- i) Weekly circuit would be 1.6x (Upper) and 0.6x (Lower)
- ii) Monthly circuit could be 2x (Upper) and 0.5x (Lower)
iii) Quarterly circuit would be 3x (Upper) and 0.3x (Lower).
Confused? Let me continue above example of Rs X company trading at Rs 50 per share.
1) X stock weekly circuit would be 30-80 (Rs 50 x 0.6 – Rs 50 x 1.6)
2) X stock monthly circuit would be 25-100 (Rs 50 x 0.5 – Rs 50 x 2)
3) X stock quarterly circuit would be 15-150 (Rs 50 x 0.3 – Rs 50 x 3)
Means, X stock cannot trade beyond these boundaries. This would help stock manipulation by stock brokers or traders.
Add-On Price Band based in circuit limits
List of 31 Small cap stocks identified by BSE under Surveillance Measures New Rule
Here is the list of 31 small cap stocks identified by BSE where its new rule would be applied from 3rd week of August, 2021. This list would get updated with additions/removals on periodic basis.
- Anjani Foods Ltd
- Ashiana Agro Industries Ltd
- Assam Entrade Ltd
- Available Finance Ltd
- AVI Polymers Ltd
- B&A Packaging India Ltd
- Cosmo Ferrites Ltd
- Flomic Global Logistics Ltd
- Garware Synthetics Ltd
- Gita Renewable Energy Ltd
- Gopala Polyplast Ltd
- Halder Venture Ltd
- Hazoor Multi Projects Ltd
- IEL Ltd
- Jaykay Enterprises Ltd
- LWS Knitwear Ltd
- Master Trust Ltd
- One Global Service Provider Ltd
- Pacheli Industrial Finance Ltd
- Pan Electronics India Ltd
- Pooja Entertainment and Films Ltd
- S & T Corporation Ltd
- Sangam Renewables Ltd
- Saraswati Commercial India Ltd
- Sarthak Industries Ltd
- SC Agrotech Ltd
- Shree Worstex Ltd
- Shri Bajrang Alliance Ltd
- Siel Financial Services Ltd
- Svarnim Trade Udyog Ltd
- Texel Industries Ltd
What happens if such mid cap or small cap stock touches the circuit limit?
If someone wants to sell, they need to sell at lower circuit if buyers are there, else they need to wait for the next circuit limit. Once this add-on price band circuit is reached, there would not be any further trades beyond this price. Means your money would be stuck as there are no buyers even if you want to sell at lower price.
If you are holding any of the above listed stocks and want to sell at market price, there should be buyers. If it hits lower circuit, there is no way you can sell them.
Should midcap or small cap stock investors or mutual fund investors need to worry about this new BSE rule?
Currently there are 31 list of BSE stocks identified to be part of the new surveillance measure.
1) If you are holding any of such stocks and want to come out, you may face liquidity issues in coming days.
2) BSE can add or remove stocks from this list based on certain guidelines. If you are investing in other mid cap or small cap stocks, especially macro stocks or penny stocks, there are chances that such stocks can come under BSE new rule surveillance measures. Hence investors need to be cautious about it.
3) If you are holding mid cap or small cap mutual funds, you might see a decline in NAV due to negative sentiment over BSE new circular. Since midcap and small cap segment is all time high now, there could be profit booking too in coming days. In such case the Midcap or small cap funds might show down trend or negative returns for the next. If you are a long term investor, you can ignore such negative sentiments. However, if you are looking for profit booking in the next few weeks or months, it might impact you. You need to take a call now.
4) This circular is specific to BSE listed stocks only. Means if such midcap or smallcap stock is listed on both BSE as well as NSE, these would not come under new BSE circular surveillance guidelines. NSE said there is no such plan to implement for the stocks listed on their stock exchange as of now. Hence if you are investing in midcap or small cap stocks which are listed on NSE and BSE, there are less chances that your portfolio might get impacted with such new circular.
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