‘Liquidity likely to improve in non-specified stocks’

Nitin Mathur

New Delhi, May 15: LIQUIDITY may improve in many non-specified stocks after the ban on badla comes into effect from July 2, market and industry sources said. Currently, the volumes are concentrated in 200-odd A-group stocks where carry-forward is allowed. After the ban on deferral products comes into effect, the activity may spread over to other scrips.

“After an initial shrinkage in volumes, the markets may witness higher liquidity on select counters in the non-specified category,” said a Delhi-based broker.

Another broker felt that the activity may be higher in scrips which continue in the weekly settlement mode as operators will get at least a week’s time to square off their positions, which will not be possible in scrips under the rolling settlement.

“The A-group scrips currently enjoy a special status as only these stocks are entitled to badla trading. Since this discrimination will disappear July 2 onwards, every stock will be on par,” said a Delhi-based broker. This will give a much needed respite to the small investors who have long been stuck with illiquid scrips and not able to liquidate their positions, leave alone expecting any capital appreciation.

According to former Sebi board member and chairman of the derivatives committee LC Gupta, “There was no rationale behind giving special status to A group scrips as they are already liquid. If any special status has to be given it should be extended to the less liquid stocks. The Sebi decision will definitely lead to improved volumes in non-specified group scrips.”

He added, “The year 1994, when badla was banned, had witnessed a marked increase in volumes of non-specified scrips which again declined after the ban was subsequently lifted.” He also said that the badla system has hampered the development of the Indian capital markets.

In the B-group, every counter may not witness increased liquidity. “Except for a few which are unfairly undervalued, there are not many scrips which provide investment opportunity in this group. And in any case, the better ones are expected to be shifted to rolling settlement mode, leading to a drop in their trading volumes,” said another broker.