Of the 27 new entrants, only seven have witnessed an average daily trading volume of over one lakh shares in the past one year. Consider this: Wipro, with a market cap of Rs 2,31,482 crore has, on an average, seen only 5,750 shares changing hands a day over a one year period. Similarly, Indian Oil Corporation with a market cap of Rs 1,57,378 crore has witnessed an average daily volume of only 7,691 shares over the past one year. In fact, the one-year daily average trading volume in as many as 17 companies is less than 50,000 shares and less than 10,000 shares in five companies.

One reason for the low liquidity in these counters is the relatively low floating stock. Of the 27 new entrants, there are 16companies where the public holds less than one crore shares and 13 companies where the public holding is less than 50 lakh shares. Take the case of BFL Software. On a low equity base of Rs 9.33 crore, the public shareholding of 17.8 per cent works out to only 16.9 lakh shares. Similarly, in the case of SSI Ltd (formerly called Software Solutions Integrated), the public shareholding is as low as 16.96 lakh shares. On the other hand, IOC, which has a minuscule public holding of 5 per cent, because of its large equity base, is much better placed with 1.94 crore public shares. The low public shareholding in most of the new entrants is a result of a low equity base, but more prominently, it is because of the large promoter holding.

With 12 of the 27 new entrants to BSE's Group A list coming from the software sector, it is not surprising that there is a problem of low floating stock. As software is a low capital-intensive industry, finance requirements of these companies is relatively low. The result: A lowequity base and, in most cases, a large promoter holding. And, even if the promoters do divest their stake, it is normally in the form of a private placement or a preferential allotment to institutions and foreign funds. With the sector attracting high valuations thanks to the good growth prospects, these offerings are almost always lapped up. Consequently, the scope of an equity expansion through a repeat public offering is rare. Besides, a section of the marketmen feel that with IT companies having more representation in group A, speculation might increase. The logic is simple. As most of the IT companies have a low equity base, of which a major portion is either with the promoters or financial institutions, a very small portion is left for daily trades. The low floating stock makes it easier for punters to move the stock in any direction they want to.

And, with the rumours about emergence of various cartels on the bourses, there is a danger of excessive speculation leading to high volatility at thesecounters. This concern assumes even more importance when one considers that BSE's group A is skewed in favour of the software stocks.

Post-reshuffle, the group will have as many as 17 software stocks. However, the pharma sector will continue to be the most represented sector with 19 stocks in group A after the reshuffle. Post-reshuffle, the market cap of this group will represent 67 per cent of total market cap on BSE, up from 62 per cent earlier.

Operators move in

Although the reshuffle of the group A list is effective only from September 14, operators have already started taking positions in anticipation of better liquidity at these counters. Of the 27 new entrants, 18 hit the upper-band of the filter on Monday after exhausting the daily eight per cent limit. On the other hand, of the 26 stocks exiting from the elitist group A, 17 registered losses. With the exception of Essar Steel, TN Petroproducts and Zuari Ind, which hit the upper-band of the filter, all the stocks either lost values orgained very marginally from Friday's close. According to marketmen, "Factors like carry-forward of trades at the counters of these 27 companies once they enter the group A should justify some of the premium. Higher liquidity will be an added advantage.'' They expect the new entrants to continue to rise.