BOMBAY, 13 October 2003 — It is said that the world is round and everything thus comes back. You do bad, you get bad and you do good, you get good, that is what a round world means. But it looks like on the Indian stock markets, no such logic or thought process applies. It seems to be an unwritten rule that the gullible shareholder is and will always remain the sufferer.

How else can one digest the news of the Bombay Stock Exchange (BSE) shifted several hundred scrips to the Z group - the trade-to-trade segment where every trade leads to delivery - with effect from Sept. 10, 2003.

In all, the BSE has shifted nearly 700 scrips to the Z group. This is probably the first time the exchange has taken such a drastic measure to keep tabs on market volatility. Following suit, the NSE also placed 135 securities under the trade-to-trade segment with effect from Sept. 10, 2003.

According to a BSE press release, there has been a sudden spurt in the trading of scrips that were either not being traded at all previously or had very thin volumes. Many of these companies were listed in the B2 and Z categories of stocks. The BSE also observed that the prices of some scrips had moved to higher levels with small quantities being traded. The release goes on to add that while some of the companies may have improved fundamentally and financially, there may be others that may not have seen any such improvement in their business activity to support the significant price rise.

In market parlance the Z category means the ‘kachra stocks’ of stocks which do not have much of a future. Exchanges put stocks in this category when companies violate listing norms, don’t redress investors’ grievances and fail to make demat arrangements with both the depositories. Under the trade-to-trade segment, each and every trade is settled either by the payment of funds or by the delivery of shares. Once a scrip is brought under the trade-to-trade segment, these securities are not available in the rolling segment with effect from that date.

Companies that have been transferred to the trade-to-trade segment on the BSE include Autoriders Finance (-35.33 percent), B S Appliances (-11.22 percent), Bajaj Plastics (-24.14 percent), Balaji Distilleries (-24.14 percent), Bell Ceramics (-9.68 percent), Birla VXL (-4.85 percent), BPL Engineering (-10.53 percent) and Core Healthcare (-15.27 percent).

As soon as the news of these scrips being transferred to the Z category was announced there stocks fell like nine pins and there was wide spread panic selling on the bourses. Investors felt that their exit routes had been shut down.

So now the question doing the rounds is — has this been a good decision? Well, a majority of the market players are of the opinion that the exchange’s decision is good for investors as far as their long-term interests are concerned, since most of these companies have doubtful fundamentals. It is a very good thing since it will protect small investors and will also get rid of undesirable elements from the markets.

There are some who feel that putting such a large number of scrips in the Z category could hurt market sentiment, especially when the equity markets are booming. And most agree that this move has hurt the shareholders more than punishing the operators. Those move has shut the exit routes.

What this also means is that small companies, unless and until have strong fundamentals will take a beating from the BSE.

Yet, what is confusing is that, immediately a week since this move was announced, BSE goes ahead and relaxes listing norms for smaller companies, aimed at facilitating the listing of small-sized companies on the exchange.

Companies with a Rs.30 million capital can now apply for listing of shares, provided they fulfill certain conditions prescribed by the exchange, in addition to SEBI requirements.

At present, BSE allows listing of shares of companies with a post-issue capital of Rs.100 million or a capital Rs.50 million, with a market capitalization of Rs.500 million.