By DK Aggarwal
The BSE has made various classifications for the listed stocks in order to make investors and laymen understand about more clearly about them. For this, it has grouped the stocks into various categories based on trading characteristics on the exchange platform such as market capitalisation, trading volumes and numbers, track records, profits, dividends, shareholding patterns, corporate actions and other qualitative aspects.
The classification patterns are more or less same in both the main exchanges, BSE and the National Stock Exchange. In this article we will be discussing about the BSE’s various stock classifications such as A, B, S, T or T2T and Z groups. This categorisation helps traders or investors have a good understanding of a scrip’s behaviour in order to be able to make better selection.
When a stock is placed in ‘A’ Group, it is among the most liquid stocks and is excellent from all aspects for trading and investing purposes. It has high trading volumes too. Market capitalisation is one key parameter for deciding which scrip gets classified in Group A. This classification is in a way a guarantee that these companies follow the basic listing requirements such as reporting results on time, making proper disclosures. Plus, settlements in this group stocks are done under the normal rolling settlement process.
‘S’ grade companies are small one, typically those with turnovers of Rs 5 crore and tangible assets of Rs 3 crore. They have low liquidity on the bourses. Due to lower volumes, these stocks may also see frenzied price movements.
Stocks classified under the T2T category cannot be traded on an intraday basis and traders or investors purchasing or selling these shares need to take delivery by paying full amount. It does not mean that investing in this category is risky. In fact, these stocks can provide some protection against speculative trades, and thus disruptive price movements. The idea behind introducing this category is to curb speculative trading or to counter intentional market manipulation done by frequently trading a stock by groups of traders.
Stocks clubbed in the ‘Z’ category are those which fail to comply with the exchange’s listing requirements or may have failed to redress investor complaints.
And then there is Group B, which houses all the stocks that do not fall into any of the above categories. The ‘B’ counter sees normal volumes and traded are settled under the rolling system. B1 is ranked higher than B2 categories.
Besides the above-mentioned groups, the exchange also has another classification, called the SLB group. This is meant for dematerialised securities traded in the F & O segment, which are eligible for lending and borrowing. From time to time, the exchange announces addition/removal of securities to/from the list.
Further, based on the market capitalisation of companies, stocks are categorised into largecap, midcap and smallcap blocs. Though the perception about a company changes with its shift from one group to another, the fundamentals remain same. So investors should consider each stock on its own merits.
Chairman and MD, SMC Investments and Advisors
Source: Economic Times