MUMBAI: Stock exchanges have stepped up vigil in the wake of a strong rally in smallcap and penny shares. BSE has sought clarification from at least 12 companies in the past few weeks regarding the sharp spurt in their stock prices or a surge in trading volumes.
BSE's smallcap index has gained 35% since March 01 -the start of the renewed rally after declining in January and February -and the BSE 500 index has gained close to 30%. The spurt in several other smaller stocks has been much sharper with some of them more than doubling in less than a month. Brokers said BSE could be writing to companies to check the possibility of manipulation amid the frenzy in these share categories.
"Whenever there is an upmove, it is common for some stock operators or promoters to try and make a quick buck," said Rajeev Thakkar, CIO at PPFAS Mutual Fund. "This will come in the form of positive news flow or unsubstantiated rumours."
A lot of these companies have reported lacklustre earnings even as their stock prices and trading volumes surged. For instance, D-Link, which received a query from the exchange for an increase in volume, has seen a profit after tax of Rs 0.97 crore in the June quarter as against Rs 6.28 crore in the March quarter. The delivery volume in the stock on Thursday was 9.8 lakh shares, up 11 times the five day average delivery volume.
BSE has written to 19 companies since the beginning of September. Some of these companies have witnessed prices shooting up significant y in the last one week.
"Market is doing a bit of downtrad ng in terms of quality ," said Pankaj Pandey, head of research at ICICI Securities. "Price discovery could be a challenge in some companies as it may not be driven by fundamentals." Atlas Jewellery is one of the companies that was issued a notice about a surge in price. So far in September (till Wednesday), the stock was up 70%. But after that the stock corrected as the company received the letter.Still, investors have made 57% returns in the stock in the last one month while the sector return for the period fell 0.76%.
When it comes to surveillance, BSE looks at price and volume movements in order to detect potential abuses. This is done to minimise the ability of the market participants to influence the price of any security in the absence of any meaningful information.
"When there is a big increase in price or spurt in volume, it raises doubt and it is to clear this doubt that the exchange has sought clarifications," said V Balasubramanian, VP , IDBI Mutual Fund.
"At this situation, it is better to stick to companies where one is confident of the fundamentals," said Thakkar.
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