Ever wondered what happened to one-time favourites such as Silverline Technologies, Parekh Platinum, SKM Egg Products and Teledata Marine? These are a few of the growing number of stocks suspended from trading on the exchanges.
The number has been rising since last year. Fifty-six stocks were suspended from trading by the Bombay Stock Exchange last year, twice more than in 2011. The suspensions, so far, this year have already touched 48.
The exchanges currently sport a list of around 1,200 suspended companies. The number is alarming since it accounts for almost a quarter of the actively traded scrips in Indian stock market. About Rs 2,500 crore of shareholder funds is locked in these companies, based on their last disclosed net worth. That’s not a big number, given that shareholder funds of all listed companies exceeds Rs 30 trillion (lakh crore). But the number is low because two-third of the suspended companies have a negative networth.
Why it happens
Typically, a stock is suspended from trading if the company fails to file its results, shareholding pattern or corporate governance report to the exchanges for two consecutive quarters. A stock can also be barred for trading by the market regulator if it finds evidence of market manipulation.
Yogesh Chande, Consultant, Economic Laws Practice, explains: “It would not be prudent to allow continued trading in the security of companies which default in making disclosures as laid down in the listing agreement. Some of the disclosures may affect the market prices of the security.”
Increase in such companies is due to slowing economic growth and high borrowing costs. They probably find it easier to take this route and keep away from public glare.
Some companies were barred because of stock price manipulation and other irregularities. Vatsa Corporation and Vatsa Music, which boasted around Rs 11,000 crore of shareholder funds, are cases in point. Pyramid Saimira, banned by SEBI for irregularities in its public offer and DSQ Biotech, indicted for price manipulation, are two others.
Timely action needed
Avinash Gupta, Senior Director and Leader, Deloitte, says it is up to investors to take care in examining the quality of the business and management before taking investment decisions.
Once a stock is suspended from trading, there is little investors can do given that stocks are unsecured, risky investments.
Is it fair to shareholders that they be denied an exit opportunity because the company violated the rules?
Chande has a different take on this: “Investors may feel that stock exchanges are playing into the hands of unscrupulous promoters. But not taking action against the company may adversely affect the interest of new investors who may invest in the shares of these companies,” he says.
It may be possible for shareholders of suspended companies to initiate “class action suits” under Section 245 of the new Companies Act, 2013, once notified.