BSE - BEING THE POLICE ALL DISLIKE

Yesterday, the large caps were back in the reckoning. But the real doyen of the markets – the small and the mid cap, which are what brings in millions of new-age retail investors was down in the dumps.

There were hundreds of calls, yesterday and today too, asking us whether the bottom was falling off the markets? The falling of mid and small cap stocks has become the all-encompassing ‘market’. These are the stocks that today represent the market and not the old bastion large caps – that’s one big learning from the tumbling stocks.

This panic mode set in when on Tuesday, out of the 3656 stocks traded daily, 521 ended in the lower circuit, with no buy orders.  From the peaks they scale on 4th August, within these two days, the mid-caps corrected over 3% and small-caps by 5%. The fact that they were the darlings of the investors – BSE Midcap index rose 29% in 2021 while Smallcap Index rose by a huge 48%; clearly, they were the market movers and shakers.

So, why did this mad frenzy of selling emerge in these two? One reason – many are arguing that they are overvalued and traders/investors are booking profits. Many are said to be selling shares in these stocks to raise funds to invest in IPOs where listing gains seem to be more enticing.

Well, this could be partly true but the second and main reason holds more water – the BSE, on Monday issued a circular, notifying trading members that it is going to place an additional price limit on securities listed on its bourse from August 23. Why? Though the official line from the BSE is – “maintaining market integrity and curbing excessive price movement” in simple words it means, “abhi toh party shuru hue hai but aunty ne police bula di hai.”  So, if the police have been called in, naturally those for quick gains and those just following the herd, beat a hasty retreat.

The BSE has introduced what it calls as the “Add-on Price Band Framework”. Based on the Circular, these are the highlights:

*The mid and small cap stocks will now have to undergo Weekly, Monthly and Quarterly price limits.

*Add-on price bands will be over-and-above to the applicable daily price bands of such securities.

*The Add-on price band shall be expressed in terms of a ratio of close price of the security and depending upon the daily price band slab applicable for the security, there will be different ratios of add-on price bands as given below –

*Once the security reaches the respective price limit of a period, trading shall be allowed only within the respective prescribed price range and the same shall not be revised till the beginning of next cycle i.e. next Week/Month/Quarter wherein new price limits shall be computed for the respective periods.

*Final upper daily price band shall be minimum of all individual upper price band limits and final lower daily price band shall be maximum of all individual lower price band limits.

*A security placed in Add-on Price Band Framework shall remain in the framework for a minimum period of 90 calendar days and shall be eligible to move out if it does not qualify the provisions of the above framework thereafter. Review of the shortlisted securities under the framework i.e. inclusion/exclusion shall be carried out on monthly basis.

The investors/traders are pretty miffed with these curbs as they find it draconian. The broke are of the opinion that such curbs will further bring down volumes on the BSE and because, no word about this has yet come from the NSE, business will move there.

The BSE has explained – if a stock is priced at Rs.100 and in the 10% circuit filter, under the new Add-on Price Band, it can rise only by Rs.30 in one week and Rs.100 in three months. And on the lower side, it can fall by Rs.25 in one week and Rs.50 in three months.

Why such stringent measures? Such pitiable upward price movements will kill both the sectors and drive away this new band of retail investors. Is that what the BSE wants – only investors and no traders? Even for a mid-term investor, this is pitiable gains. Such curbs will once again push money into other avenues, which might give much better returns. Killing the goose that lays the golden eggs – that’s what BSE is doing.

Too much protection stifles and kills…