At present, there are 1,008 scrips — nearly a third of the listed universe — trading in single digits, up 52 per cent in the past 18 months. At the start of 2018, there were only 663 stocks
— less than 20 per cent of the listed universe — quoting below Rs 10.
For the period under consideration, the number of companies whose stock prices are in three or four digits has reduced by over 20 per cent.
Some companies whose share prices were reduced to single digits are Gitanjali Gems, Punj Lloyd, IL&FS Transport and Ballarpur Industries.
Companies that are out of the three-digit universe include Punjab National Bank, Vakrangee, Speciality Restaurants, Reliance Capital, Tata Coffee, and GTPL Hathway; those out of the four-digit club include Shankara Building Products, BEML, and Kirloskar Industries.
The BSE Midcap and Smallcap indices have fallen 20 and 30 per cent, respectively, from their highs touched in January 2018.
"There is an increased emphasis on quality relative to what has been the case till now. The focus is now more on buying large-cap stocks.
Secondly, there is less liquidity in the system for funding against security, so people are deleveraging," said Abhimanyu Sofat, vice president (research) at IIFL.
High debt and failure to service debt on time has resulted in huge value erosion for several companies. This has also resulted in credit downgrades, bankruptcy filings and aversion from new buyers.
Regulatory action by stock exchanges and Sebi, in terms of trading restrictions, higher margins, and higher costs, resulted in some stocks
falling out of favour and their values crashing.
Disruption in some businesses and their inability to adapt to the changing requirements resulted in losses for some companies, with a fall in their share prices, said experts.
Low prices make manipulation easy for promoters and operators, said experts.
"This is because manipulators can use a small investment to trigger a spike. This is usually backed up by spreading positive reports about the company. After the stock rises, the manipulators sell out fast, triggering a crash and leaving small investors in the lurch," said Deepak Jasani, head of retail research, HDFC Securities.
Market players said exchanges and regulators had tried to curb this menace by levying extra margins, putting restrictions on their trading, and increasing their transaction fees. The principal reason for these stocks to remain listed is to provide an exit route to investors, they added.
Experts said unless issues related to liquidity were resolved and there was an earnings and economic revival, the penny stock universe faced risks of ballooning even more.