SEBI effect: Small-cap, penny stocks lose steam, fall 50 pc

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Virendra Verma

Mumbai, Oct. 15

PRICES of several small-cap and penny stocks, which were driven up during the July-September bull rally, have fallen sharply in the last few weeks.

This follows the SEBI action against some promoters and companies for manipulating stock prices and the strict surveillance measures initiated by stock exchanges. Stock analysts and investors feel, though in small measure, this is a good thing that happened to the market.

Stocks of over 200 companies have fallen more than 50 per cent, with many of them just finding sellers and no buyers during this period. The situation is even worse in the case of stocks whose prices are between Rs 10 and Rs 20.

SEBI took action against more than half a dozen companies and their promoters since September 28. Mr Arun Kejriwal of KRIS Research said that the action taken by SEBI has corrected the prices of small-cap stocks and many of them have fallen by more 50 per cent.

"It is a good beginning, but investors should take note that there are many more such stocks awaiting to trap gullible investors," he said. Not only the prices but the volumes too of these stocks have come down sharply. Dealers said the fall in volume is due to the fact that a large number of stocks had only sellers and no buyers.

The panic-like situation in penny stocks has also resulted in a drop in the number of companies traded on the BSE from 2,673 on September 15 to 2,517 on Friday. Brokers said several investors have lost money in penny and small-cap stocks and they will not be able to exit from these stocks for some time as they are locked in a lower circuit everyday with only sellers and no buyers.

Promoters' holding in IFSL down to 0.27 pc

PROMOTERS' holding in IFSL, against whom SEBI had taken action, has come down to almost nil between June and September. The holding of promoters declined from 17.03 per cent in June 2005 to 0.27 per cent by the end of September. SEBI had banned the promoters of IFSL from dealing in the shares of the company and also prevented IFSL from raising fresh capital for alleged price manipulation in the stock.

During the same period, FIIs' holding has increased from nil to 16.30 per cent. Public holding too has come down from 66 per cent to 50.57 per cent. Private corporate bodies have increased their holding to 29.49 per cent from 16.80 per cent in the same period.

(This article was published in the Business Line print edition dated October 16, 2005)
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