Hi all
The new ESM (introduced June 5) guidelines which put all small-cap stocks in the ESM Stage 2 (trading is restricted to once per week and that too by auctions) are extremely devastating to micro-cap equity buyers.
Essentially the moment a small-cap stock starts rising well its trading is halted.
Is anyone else dramatically affected by this?
I was planning on writing to NSE to complain.
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Its good move actually, will close pump and dump forever. For good company it will also be good as people can accumulate at lower price .
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Pump and dump is applicable if the company is not a quality business but the regulation has nothing to do with the quality of the business its a blanket restriction.
For a good company, there is no point accumulating it at a lower price if it is prevented from reaching a good price by the government. The moment a good stock rises the trading a blocked . It makes no sense
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Its just for short time , if its really good business than price would rise and over the years. It might be bad for short term traders but really good move for investors. Micro cap can easily manupilated how good the business is.
I really like the move to be honest from investors point of view might not be great for short term traders
What is the definition of quality business ? Every business listed went through the vetting process and “good” is very relative term. For some Zomato, Paytm are bad business now or shoould not be invested but were “good” business when listed 2X . So , again these valutions and fundamentals should be taken with a pinch of salt
The minimum duration of stock on the ESM stage 2 is one month. Trading happens once a week and is extremely restrictive. It is not like they are removing price bands either. So essentially there are three types of restrictions. Price band, frequency of trading and periodic auctions which makes it far too restrictive.
Its not a good move for long-term investors either because it will take them a lot longer to realize the value in good companies.
I won’t go into details about what constitutes a good business (there are plenty of books on this) but I think everyone can agree that good business exist.
By the way, trading has stopped on 70+ stocks and the number is rising by the day
Full list
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I won’t go into debate about right or wrong decision( nothing is perfect), one thing I know in market nothing is constant .So Adapt or perish. There are 7000+ business traded in Indian exchanges look for other opportunity. You have full right to raise your voice via different channel ( and you should till the point your not over consumed in it) and India is free country but in regulatory environment nothing last forever.
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Yes, extremely restrictive. I too played a lot in Microcaps .
But just like there comes a time when any strategy stops working in the market, looks like this one is up with its time too. Looks like we need a new strategy.
Though we can also say that some part of returns from this strategy were inherently derived from regulation - 5% circuit for the day and stocks kept rising in upper circuit [which they couldn’t have if it wasn’t for the circuit].
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True , but if enough people write to NSE maybe we can change it.
They have already blocked 70+ stocks within a span of 3 working days
If this continues by the end of the month trading will stop in 400+ stocks.
This is totally wrong we have to wait for one week to buy or sell the stock than from where liquidity comes. If exchange behave like this than who want to trade on these stocks and what about the investors who already invested in these stocks. These is like exchanges are changing liquid stocks to illiquid. Who will show courage to buy if the stock will show as inactive stock. This is wrong. Buying and selling is totally decision of traders . What is the benefit of this and blocking money. Its better to delist the companies rather than putting hurdles on Buying and selling.
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The “lot longer” being a week or a month is just a blink of an eye for actual long-term investors.
If one is only going to buy and hold, such delays are not deal-breakers, right?
The minimum is a month not a week. Additionally, most of them will stay there for several months or come out and go right back in after a few months.
The thing is because the volume in micro caps is low they hit the upper or lower circuit easily. The criteria to get out is to have less than 8% fluctuation in either direction in a month . Most of the stocks that traded this Monday hit either the upper or lower circuit (it was 2% instead of 5 or 10)
Does not look like they are getting out anytime soon and everyday more and more stocks are going in.
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MIC Electronic is more than 500crore market cap, it also came under ESM stage II, what is the possibility to come out for MIC? pls advice
Less than 8% fluctuation in a month in either direction. Trades only on mondays.
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But my question, the market cap of MIC Electronic is 530crore, how it was eligible for ESM stage II? Pls also let me know how to find out left days for security framework of minimum period from 90days?
Its 525 from what I can see on screener.in. 500*1.05 = 525 . So I guess they added it on the day it was at 500 Cr and crossed upper circuit.
Pls help with Final clarification, as per analysis, MIC will post good result of Q1 in 2nd week of July-23 and upper trend in stock will continue, ,market cap will be more than 500crore even after result, so, what is the possibility to come out completely from ESM stage 1 and ESM stage 2(by what date it can come out)
Stocks can come out of ESM stages after meeting the exchange requirements. You can check this circular to know more: https://archives.nseindia.com/content/circulars/SURV56948.pdf
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Yes, I support your comments…they should take back the new rule…
And I have a small question? Do we have any Idea on how long a stock can be there in ESM stage 2?some people are saying after one month in ESM stage 2 will go for delisting? Is it true?