Kolkata: The National Stock Exchange (NSE) is looking at ways to allow trading of stocks listed on other, mostly regional, exchanges, according to its managing director Ravi Narain.
The move will increase the depth of the Indian stock market by making it possible for investors to trade in more stocks. It will also give an edge to NSE itself which, while being India’s dominant exchange, faces increased competition.
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In November, NSE started trading in “some 20 stocks” listed on the Madras Stock Exchange (MSE), and the response so far has been so “encouraging” that the exchange is looking to start trading in shares listed on other regional exchanges, Narain said.
Also, to generate investor interest in these stocks, which are not widely tracked by broking firms and equity analysts, NSE has asked credit rating agency Crisil Ltd to conduct a quarterly study of their performance and fundamentals. Crisil’s report will be shared with the public, Narain added.
“Unlike other listed companies, people’s awareness about these companies is very low,” Narain said. “By commissioning this research, we hope to generate more investor interest in these stocks… Some of these companies are fundamentally very strong.”
Indeed, there has been significant spurt in price and trading volume of some of these stocks since trading in them began on NSE in November.
For instance, shares of Chennai-based Amrutanjan Health Care Ltd closed at Rs1,172.70 each on Monday, up from Rs425 apiece on 5 November—the first day of trading on NSE; they touched a 52-week high of Rs1,340 on 6 April. On the first day of trading, there were transactions in only 107 shares of the firm; trading volume peaked at 1.3 million shares on 6 April.
To be sure, some of this may be explained by speculative trades, according to an analyst.
This is evident from the fact that less than 10% of the stocks traded in a day were being delivered, according to Rajesh Agarwal, director of CD Equisearch (Pvt.) Ltd, a Kolkata-based stockbroking firm. “But some amount of speculation is unavoidable in markets as deep as NSE and BSE (Bombay Stock Exchange),” he added.
Some of the stocks adopted by NSE were being traded on the BSE’s Indonext trading platform—under which shares listed on regional stock exchanges and companies with small equity base are traded—but the former’s initiative has led to better price discovery, say investors and stockbrokers.
“It’s because NSE has a much wider network of brokers than BSE,” said Narottam Dharawat, a Mumbai-based stockbroker.
NSE has at least 200,000 trading terminals in around 1,500 cities, according to one of its spokespersons. The exchange currently allows trading in 29 stocks of this nature (they are called permitted stocks).
But trading volume in some of these shares still remains low. For instance, shares of The Lakshmi Mills Co. Ltd reached a high of Rs2,553 apiece on 6 April, 76% higher than the price at which trading began on 13 November, but only a few hundred shares of the firm are traded every day. On Monday, the stock closed at Rs2,449.55 but only 400 shares were traded.
Besides a small equity base, the free float of most of these stocks, or shares available for trading, is very low, Narain said, explaining why trading remains thin in some of them. “Also there’s hardly any institutional interest in these shares, but what is important is people who have been holding these shares for years, now have an exit opportunity,” he added.
Another reason for low trading volume in some of these stocks is that many shareholders have not yet dematerialized their shares.
In Jumbo Bag Ltd and The Lakshmi Mills, for instance, 21% and 38.5% respectively of the shares are still held in the physical form.
Jumbo Bag’s company secretary Jayanth Viswanathan said his company had been persuading shareholders at each annual general meeting to convert their shares into electronic format, but some do not seem to be interested in selling at all.
Graphic by Paras Jain / Mint