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A mad rush among retail investors to get out of small and mid-cap stocks on Tuesday led to a panic situation. As many as 521 stocks were locked in lower circuits with no buy orders for them. A BSE circular is being cited as a key catalyst for panic selling in a large number of small and mid-cap stocks.
On Monday, BSE said it was capping the rise in share price of stocks exclusively listed on its platform. Brokers said that any kind of curbs on free movement of stock prices is a suppression of free markets and will not be accepted by investors.
Market regulator SEBI had given its ascent to such a measure, which the brokers are now calling draconian. There are nearly 2,000 stocks that trade only on the BSE and the exchange stands to lose volumes in these counters due to the curbs, brokers said.
Additional surveillance
BSE said that its move to cap the rise in share price was part of additional surveillance measures. India is one among the few global markets that have stringent caps on the share price increase. A stock, which is not in the derivatives segment, can rise by a maximum of 20 percent. Similarly, there are shares that attract circuit filters 2 per cent to 10 per cent every day. Then, there are several shares where delivery is compulsory and they also require 100 per cent upfront cash to purchase them.
Brokers say traders are more attracted to derivatives as any stock in the segment is free to rise any number of times and option prices can move even 1,000 or 2,000 times in a short span of time and nobody schemes manipulation. However, the view within BSE is that the exchange will act if anyone points out that its platform was used for share price manipulation.
BSE said its new cap on price rise will be in addition to the existing measures and circuit filers. As per the Monday circular, a stock that is priced at ₹100 and already in the 10 per cent circuit filter category can rise only by ₹30 in a week and ₹100 in three months. Similarly, stock priced at ₹100 can fall by ₹25 in a week and ₹50 in three months. It has spelled out several such caps with regard to stocks that attract circuit filters between 2 per cent and 20 per cent.
Though benchmark indices closed with marginal gains on Tuesday, small and mid-cap stocks witnessed heavy selling with 2,500 stocks closing in the red. The S&P BSE Midcap was down 0.85 per cent while the S&P BSE Smallcap was down 2.05 per cent.
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