Small/mid-cap stocks recover after BSE clarifies on price curbs

BSE-listed mid-cap and small-cap stocks recovered from sharp decline after the exchange clarified that the additional price limits it set on Monday would be applicable only to certain stocks having market capitalisation of less than Rs 1,000 crore.

During the day, the smallcap index tumbled

3.30 per cent and the midcap index plunged 2.15 per cent. However, at the close of trading, the smallcap index was down 0.83 per cent and midcap, 0.22 per cent.

To curb excessive volatility in mid and smallcap counters, the BSE has introduced a new surveillance measure for certain stocks having a market capitalisation of less than Rs 1,000 crore.

The new measure, addon price band framework, will be applicable to companies with a market-capitalisation of less than Rs

1,000 crore and on securities in groups—X, XT, Z,

ZP, ZY, and Y, the exchange said in a circular on Wednesday.

The exchange, in a circular on Monday, had said the shortlisted securities will be subjected to additional periodic price limits of weekly, monthly and quarterly over and above the daily price limits they have.

"The said framework is applicable to BSE exclusive securities in groups viz. X, XT, Z, ZP, ZY, Y. Securities should have a price of Rs 10 and more. The market capitalisation of the security should be less than Rs 1,000 crore," the BSE said in smodification and supersession of the exchange's circular issued on August 9.

The August 9 circular is intended to curb excessive price movement in securities listed exclusively on the BSE trading platform as many of the illiquid securities in the broader market had shot up sharply recently.

The new measures are effective from August 23.

"BSE's new surveillance framework with add-on price bands for specified stocks listed exclusively on the BSE is a timely initiative to curb excessive speculative activity in these stocks. It is a fact that there is froth in the mid and small-cap space. Many stocks in this segment have low liquidity and, therefore, are capable of being manipulated by a group of traders," V.K. Vijayakumar, chief investment strategist, Geojit Financial Services, said.

Retail investors now hold almost 70 per cent of the free float of penny stocks, compared to 2 per cent holdings of local mutual funds, according to Bloomberg Intelligence.

A sharp run-up in penny stocks indicates signs of "mounting excesses" and downside risk of perhaps 10 per cent, Bloomberg said.